Question

Explain how labor mobility costs can create upward sloping labor supply curves for individual firms.

Answer 1

In the labour market, employers demand labourers and employees supply labour as the demand and supply model... Labourers are perfectly mobile under perfect competition... When they have the freedom to move from one place to another, they will supply their labour to higher wage firms because labour supply is directly related to wage rate... Labour mobility cost creates huge labour supply. For example a person migrated to abroad due to get a better job, his mobility has a cost... In order to overcome that cost and make payments for better lifestyle, he will supply labour at the wage rate.. If wage rate increases, supply of labour also increases. So individual firms must hire workers at a better wage rate....