Explain the relationship between labor supply and elasticity in South Africa's public sector with the help of a diagram.

Supply elasticity is increased through education driven initiatives. Stated differently, education driven initiatives are used to increase variables that will, in turn, increase supply elasticity. This is worth reiterating: the aim of supply-increasing education projects should not be to decrease the measurable skills shortage (difference between supply and demand at the current average salary level) to zero, as a small yearly shortage indicates a healthy year-on-year growth in demand - an indicator of industry growth.

The ICT industry of South Africa is one of the largest public-sector industries.

Thus, we will explain the relationship between elasticity and labor supply taking the example of the ICT industry.

The South African ICT industry, employing professionals with skills including basic e-Skills, software development skills, and Information Systems (IS) skills such as business analysis and systems analysis, have been identified as an industry that is not contributing enough towards economic development in South Africa, especially through ICT education and training.

A sufficient, sustained supply of tertiary level ICT skills at graduate level to stimulate growth in the developing South African economy is an important concern for all stakeholders involved in the South African ICT labour market.

A generally accepted proposition from neoclassic human capital theory states that investment in the education of labour increases the productivity, and hence the output, of a workforce. Stated differently, education increases human capital, and increased human capital results in higher productivity. Increased productivity and output, in turn, supports economic development. From within this generally accepted position, we assume as starting position for this study that investment in the education of ICT graduates will stimulate economic growth in South Africa. This economic growth includes greater capital investment in the ICT sector.

Currently the South African ICT industry is functioning on an almost perfectly inelastic supply curve. Labour supply curves often take on inelastic shapes, indicating a production possibility frontier. If this production possibility frontier is less than the current demand at expected salary, there is a labour shortage in the market.

If an increase in supply can be engineered, where supply is higher and more readily available at all salary levels, the immediate shortage of new graduates will become smaller as the distance between the intersection of the supply and demand curves with the average salary curve becomes smaller.

we see not only the level of supply increasing, but also the shape of the supply curve changing - becoming more horizontal with a more moderate gradient. This change in shape indicates a change in what economists' term the "price elasticity of supply" - how sensitive the supply [of ICT graduates] is to a change in price, or in this labour market scenario, a change in expected salary. A moderately elastic supply, indicates a measure of fairness [competitiveness] in a labour market - a position where companies cannot attain labour too far below the average salary and labourers cannot expect wages too far above the average salary rate.

Moderate supply [price] elasticity in a labour market moves the intersection of the supply curve and the average salary line much closer to the intersection of the supply and demand curve - the point of optimal profit and efficiency within the market. From a development economics or welfare economics viewpoint, this is our goal: to increase supply and the elasticity of supply until we have eliminated inefficiencies from the labour market and have the supply and demand curve intersect each other on the current [realistic/internationally competitive] average expected salary line.

Increasing the elasticity of the supply is, according to the authors, at least as important as increasing the level of supply, as this increases the profitability for companies in the market, the attractiveness of the market for graduates (from a salary and industry risk point of view) and, by definition, moves the labour market to a more efficient, competitive state.

The adjacent graphs give an overview about the elasticity of labour supply in South Africa.

The inelastic supply curve gives a situation where for a given wage, the graduates are not very much willing to deliver their labour and the moderately elastic supply curve, shows a particular increase in the supply of labour, with an increase in wages.

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