Market Supply: The market supply curve is an upward sloping curve depicting the positive relationship between price and quantity supplied. As price increases, quantity increases due to low barriers to entry, and as the price falls, quantity decreases as some firms may even opt out of the market.

Diminishing returns and increasing costs. Firms need to sell their extra output at a higher price so that they can pay the higher marginal cost of production. The supply curve slopes upward, reflecting the higher price needed to cover the higher marginal cost of production.

Thus an individual’s supply curve of labor may be positively or negatively sloped, or have sections that are positively sloped, sections that are negatively sloped, and vertical sections. While some exceptions have been found, the labor supply curves for specific labor markets are generally upward sloping.

The key to the tradeoff is a comparison between the wage received from each hour of working and the amount of satisfaction generated by the use of unpaid time. However, the backward-bending labour supply curve occurs when an even higher wage actually entices people to work less and consume more leisure or unpaid time.

quantity demanded of labor decreases, but the demand for labor curve does not shift. A shift in demand for a given factor of production will NOT occur if: the price of that factor falls.

Factors that can shift the demand curve for labor include: a change in the quantity demanded of the product that the labor produces; a change in the production process that uses more or less labor; and a change in government policy that affects the quantity of labor that firms wish to hire at a given wage.

Just as the demand curve of a product changes or shifts as a result of changes in income or changes in tastes-or preference of the consumers, similarly the demand curve for the factor (i.e., MRP curve) will shift following the changes in the basic determinants of the factor demand.

Changes in alternative opportunities: The supply of labor in one market de- pends on the wage available in other markets. If the wage in alternative markets rises, workers will switch to the alternative markets, and supply of labor in the first market will shift to the left.

But a rise in the fixed costs of labor increases the cost of an extra worker relative to that of an extra hour per worker. After all, it is the total number of worker-hours across the economy that determines how much is produced—the GDP.

Labor costs are also classified as fixed costs or variable costs. For example, the cost of labor to run the machinery is a variable cost, which varies with the firm’s level of production. A firm can easily increase or decrease variable labor cost by increasing or decreasing production.

Other mechanisms which might drive up labour cost could include more use of agency staff, more overtime hours, special bonuses and so on. Whatever the cause, costs are running ahead of the price for goods and services, implying that business margins are under severe pressure.

Unit labour costs are often viewed as a broad measure of (international) price competitiveness. They are defined as the average cost of labour per unit of output produced. They can be expressed as the ratio of total labour compensation per hour worked to output per hour worked (labour productivity).

Long lunch breaks are one of the examples, where employees spend a considerable amount of productive hours in non-productive activities. Errors in work also increase both loss in wastage and time spent on rework. This is also an example of decreasing productivity, which ultimately leads to an increase in labour costs.

Labor is the amount of physical, mental, and social effort used to produce goods and services in an economy. In return, laborers receive a wage to buy the goods and services they don’t produce themselves. Those without desired skills or abilities often don’t even get paid a living wage.