Question

Which of the following events will shift the labor supply curve to the left?

(check all that apply)

The economy falls into a recession.

Unemployment benefits rise.

Wages begin to rise.

Labor productivity falls.

Answer 1

Answer: Unemployment benefits rise.

The rise in unemployment benefits will shift the labor supply curve to the left.

When the supply of labor decreases, then the labor supply curve shifts left. The shift of the labor supply curve to the left means that at the given wage rate, the people are not willing to work and as a result the labor supply decreases. The following diagram depicts it.

In the above diagram, the number of workers or labors is measured on the horizontal axis, and the price of labor, i.e., wage rate is measured on the vertical axis. D₁D₁ is the demand curve for labor , and S₁S₁ is the original supply curve of labor. The labor market is clear at equilibrium wage rate W^* with the equilibrium quantity of labor L^*. Now if the unemployment benefits rise, it will discourage people to work. They will like to remain unemployed rather than searching job.So at the prevailing wage rate, the labor supply will decrease. As the labor supply decreases, the labor supply curve will shift left of the original labor supply curve. In the diagram, at the prevailing wage rate W^*, the new supply curve of labor is 'S₂S₂' , which is to the left of the original supply curve of labor 'S₁S₁'.

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