Factors that Cause a Shift in the Labor Supply Curve

Updated Jan 3, 2023

The labor supply curve shows how workers respond to changes in wages. That means it shows how much more (or less) they are willing to work if their wages (i.e., the opportunity cost of their leisure time) increase or decrease. In that sense, the labor supply curve is the counterpart to the labor demand curve, which focuses on the firms and their decisions (see also factors that shift the labor demand curve). Starting from there, we can identify three factors that can cause a shift in the labor supply curve: changes in tastes, changes in alternative opportunities, and immigration. We will look at each of these factors in more detail below.

1. Changes in Taste

If tastes, or in this case attitudes towards work, change, people are willing to provide more or less of it, which shifts the labor supply curve. If work becomes more desirable from society’s point of view, the labor supply curve shifts to the right. On the other hand, if people or certain groups of people value their leisure time more, the supply curve shifts to the left.

To illustrate this, consider the role of women in the workplace over the years. In earlier generations, it was the norm for women to stay at home and look after their children once they had started a family. However, this has changed significantly and an increasing number of mothers choose to combine family and career. As a result, they are willing to provide more labor than previous generations and the labor supply curve has shifted to the right.

2. Changes in Alternative Opportunities

The supply of labor in any industry (i.e., labor market) depends on the opportunities that are available in other labor markets. If work becomes more profitable in other industries, the labor supply curve of the initial industry shifts to the left. By contrast, if the opportunities available in other labor markets decline, the labor supply in the initial industry shifts to the right.

To give an example, consider two rather similar industries: automotive and motorcycle. Now assume that the average wage of an engineer in the automotive industry rises substantially. That makes it more attractive for engineers who are currently employed in the motorcycle industry to switch jobs and work on cars instead of bikes. As a result, the labor supply curve in the automotive market shifts to the right, while the labor supply curve in the motorcycle industry shifts to the left.

Note that changes in alternative opportunities have a more significant impact on labor supply if it’s easy for workers to switch from one labor market to another (i.e., low barriers to entry and exit).

3. Immigration

Finally, the supply of labor also depends on the movement of workers between countries and regions. If more people move to a country, the workforce grows, and the labor supply increases. This shifts the labor supply curve to the right. On the other hand, if people move away from a region, that region’s workforce contracts, and the labor supply curve shifts to the left. Therefore, most political debates on immigration revolve around its effects on domestic labor supply.

For example, if people move from Canada to the US, the Canadian labor force shrinks, because fewer workers live in the country. Meanwhile, the US labor force grows, due to the Canadian immigrants. As a result, the labor supply curve in Canada shifts to the left, and the US labor supply curve shifts to the right.

Summary

The labor supply curve shows how workers respond to changes in wages. Starting from there, we can identify three factors that can cause a shift in the labor supply curve: changes in tastes, changes in alternative opportunities, and immigration. If tastes (i.e., attitudes towards work) change in favor of work, people are willing to provide more of it, which shifts the labor supply curve to the right. Meanwhile, if work becomes more profitable in other industries, the labor supply curve of the initial industry shifts to the left. Finally, if more people move to a country, that country’s workforce grows, and the labor supply curve shifts to the right.