Sample Essay on Income Distribution and Labor Markets

Income Distribution and Labor Markets

Income redistribution refers to the practice of leveling income distribution between the rich and poor through direct transfers. A top earner, says a producer, may favor income redistribution because it increases the consumer base since the poor have more income to spend. This leads to increased demand for commodities of the producer translating to increased profits for the producer. Another reason a top earner may favor income redistribution is that it leads to the economic growth of a country. Since the demand increase has to be catered for, production increases, the economy grows further creating a suitable environment for the top earner to operate in.

A labor supply curve represents the number of hours that workers are willing to work at a given wage rate. An increase in wage rate causes the worker to substitute more work hours for labor hours (substitution effect). An increase in wage means that worker now has more income to spend on commodities including leisure (income effect). Up to a certain level of increase in wage rate, the substitution effect outweighs the income effect giving an upward-sloping labor supply curve. Beyond a certain wage rate, the income effect outweighs the substitution effect causing a backward bending supply curve. To obtain the supply curve of a specific occupation, individual labor supply curves of individuals are summed up. Generally, for a specific occupation the labor supply curve tends to be upward sloping because as the wage rate increases, the occupation attracts an increase in the number of workers willing to supply labor. These new labor supplies tend to have an upward-sloping labor supply curve. Additionally, the number of individuals having an upward-sloping labor supply curve exceeds those with a backward bending curve giving an aggregate of an upward sloping curve for the occupation

References:

Guru, S. (2014, April 19). The Supply Curve of Labour (Explained With Diagram). Retrieved from https://www.yourarticlelibrary.com/economics/supply-curve/the-supply-curve-of-labour-explained-with-diagram/37466

Luenendonk, M. (2016, August 3). What is Income Redistribution (including why and how it is done)? Retrieved from https://www.cleverism.com/lexicon/income-redistribution-definition/