Fig. 1 shows the local labour market for bicycle couriers working for a food-delivery platform. The platform raises its offered hourly wage from £12 to £15....
Question 1 Report
Fig. 1 shows the local labour market for bicycle couriers working for a food-delivery platform. The platform raises its offered hourly wage from £12 to £15. The quantity of labour supplied rises from 500 to 560 courier-hours per evening. The firm has demand for couriers because restaurants have received more orders, but it cannot instantly recruit workers with suitable route knowledge and safe cycling experience. A city government is considering a new minimum wage of £18 per hour for this sector. The platform wants to predict the possible effect on labour costs, employment and delivery capacity.
(a) Define price elasticity of supply of labour. [2]
(b) Identify the percentage increase in the hourly wage shown in Fig. 1. [3]
(c) Calculate the price elasticity of supply of labour between the two points shown. Show your working. [4]
(d) Explain four factors that may affect the elasticity of supply of bicycle couriers. [8]
(e) Examine the likely effects on the platform if the government introduces an £18 minimum wage. [13]
Answer Details
(a) Price elasticity of supply of labour is a measure of the responsiveness of the quantity of labour supplied to a change in the wage rate. [2 marks]
(b) The wage increase is \(£15-£12=£3\).
\[\frac{£3}{£12}\times100=25\%\]
The hourly wage rises by 25%. [3 marks]
(c) Labour supplied rises by \(560-500=60\) courier-hours.
\[\text{Percentage change in labour supplied}=\frac{60}{500}\times100=12\%\]
\[\text{PES of labour}=\frac{12\%}{25\%}=0.48\]
Supply is inelastic because 0.48 is less than 1. [4 marks]
(d) Four factors affecting the elasticity of supply of bicycle couriers are:
- Cycling skills and route knowledge may require training, so workers cannot enter quickly.
- The availability and pay of alternative jobs affects whether people move into courier work.
- Flexible hours can attract students and part-time workers, making supply more elastic.
- The cost of a bicycle, safety equipment or insurance can deter potential entrants.
- Licensing and safety checks take time, reducing short-run elasticity.
- The wage compared with earnings in other local jobs affects willingness to supply labour.
Any four explained factors are required. [8 marks]
(e) A legal minimum wage of £18 is above the existing wage, so the platform's labour cost per courier-hour rises. More people may be willing to offer courier-hours at the higher wage. However, if the platform's demand for labour is lower at £18, there will be excess supply: it will not employ every worker willing to work.
To contain costs, the platform may reduce shifts or employ fewer couriers. It may pass higher costs to customers through higher delivery prices. Higher prices may reduce demand for deliveries, reducing restaurant orders and the platform's revenue. Existing couriers who keep their jobs gain higher earnings. Higher pay may also improve retention, effort and reliability, raising productivity; reliable delivery could improve reputation and demand.
The final effect on employment is uncertain. It depends on the price elasticity of demand for deliveries, competition from substitute platforms, and whether the platform can use route-planning technology or reduce its delivery area. [13 marks]
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