A2 Economics 9708: Wage Elasticity of Supply of Labour

Meadowvale Veterinary Group employs qualified veterinary nurses across a rural region. Following a national pay review, the average hourly wage for veterinary nurses in the region rose from $16 to $20 per hour. In response, the number of people willing to work as veterinary nurses in the region rose from 800 to 880 per week.

(a) Calculate the percentage change in the wage rate and the percentage change in the quantity of labour supplied. [2]

(b) Calculate the wage elasticity of supply of labour for veterinary nurses in this region, and state whether the supply of labour is wage-elastic or wage-inelastic. [3]

(c) Explain one reason why the supply of labour to the veterinary nursing profession might be wage-inelastic in the short run. [2]

(d) State and explain one factor, other than a change in the wage rate itself, that could shift the supply curve of labour for veterinary nurses in this region. [2]

Part (a): Percentage changes in the wage rate and quantity supplied

Percentage change in the wage rate, using the original wage of $16 as the base:

$\%\Delta W = \frac{20-16}{16}\times100 = \frac{4}{16}\times100 = +25\%$

Percentage change in the quantity of labour supplied, using the original quantity of 800 as the base:

$\%\Delta Q_s = \frac{880-800}{800}\times100 = \frac{80}{800}\times100 = +10\%$

Part (b): Wage elasticity of supply of labour

The wage elasticity of supply of labour (WES) is the percentage change in quantity of labour supplied divided by the percentage change in the wage rate:

$WES = \frac{\%\Delta Q_s}{\%\Delta W} = \frac{10}{25} = 0.4$

Since $0.4 < 1$ , the supply of labour for veterinary nurses in this region is wage-inelastic: the 25% rise in the wage rate produced a proportionately smaller, 10%, rise in the quantity of labour supplied.

Part (c): Why supply might be wage-inelastic in the short run

The supply of labour to the veterinary nursing profession is likely to be wage-inelastic in the short run because entry requires a specific period of vocational training and formal certification. Even if the wage on offer rises sharply, the number of people who already hold (or can quickly obtain) the necessary qualification cannot expand very much within a short time period, so the quantity of labour supplied responds only modestly to the wage increase.

Part (d): A non-wage determinant that could shift the supply curve

An increase in the net migration of qualified veterinary nurses into the region is one factor, other than the wage rate itself, that could shift the region’s supply curve of veterinary nursing labour. If more qualified nurses move into the region from elsewhere, the number of people willing and able to work as veterinary nurses rises at every wage rate, not just at the new $20 wage. This is a shift of the whole supply curve to the right, rather than a movement along it, because the region’s own wage rate has not changed.

Final answers

(a) $\%\Delta W = +25\%$ , $\%\Delta Q_s = +10\%$
(b) $WES = 0.4$ . Supply is wage-inelastic
(c) Veterinary nursing requires specific multi-year training/certification, so qualified entrants cannot increase quickly in the short run
(d) A rise in net migration of qualified veterinary nurses into the region shifts the supply curve to the right at every wage rate