Supply curve of labour is positively sloped because at a given price, higher money wage means higher real wage. This is because:

Real wage = W/P

Increase in wages, with price level constant will therefore mean an increase in Real wage (W/P).

Thus, at each price level there will be a different (W/P) and, thus, different amount of labour supply, Ns → gives amount of labour supplied at each value of money wage. e.g.

(i) Assume at money wage → 2W1 and Price → 2P1

Labour supply → N* [Demand for labour (MPN) = Supply of labour (Ns)]

(ii) If price level is doubled e.g.

If Price → 4P1 (double of 2P1)

Labour supply curve shifts upwards towards the left to Ns (4P1) (Fig. 2.5).

Less labour is supplied (N2) at the given money wage (2W1) because when price increases (W/P) decreases.

On the other hand, at the given money wage (2W1), when price increases (W/P) decreases. As a result demand for labour increases and demand curve for labour shifts to the right from MPN. 2P1 to MPN. 4P1 and employment increases from N* to N1.

But if there is proportionate increase in both money wage and price level: