Thursday, September 15, 2005

Can't buy more work

Assume an economy with perfectly functioning labor markets. Assume that all workers have backward bending labor supply curves and that all workers are at the point of maximum labor supply. Then any change in wages will lead to less total labor being supplied*. Thus, employers would find themselves in the odd situation of being utterly incapable of buying more labor.

This by way of Stephen Marglin "What Do Bosses Do?" The argument there is, I think, that the move to the factory system was a way of forcing workers to work more than they wanted to. Under cottage industry, workers could choose continuously along their labor supply curves and hence employers couldn't buy as much labor as they wanted; in a factory system, workers either had no work, or worked more than they wanted. Hence, employers were able to buy more work.

*If wages go up, workers feel wealthier and since leisure is a normal good and they are at the point of maximum labor supply, their income effect dominates the substitution effect; if wages go down, workers feel poorer, and so leisure has a lower shadow price, and the substitution effect dominates the income effect.

4 Comments:

Blogger henry said...

The move to the factory system was a way of forcing workers to work more than they wanted to.

This strikes me as a bit disingenuous. After all, if workers hadn't wanted to start working in factories, there wouldn't have been a move at all. A factory could offer a farmer a wage that gives him just a bit more utility than working on the farm. Since farm work has diminishing returns and factory wages do not, the former farmer will work more than before. (From Ec 11?) But the farmer prefers the factory work, he's not forced into it.

6:07 PM  
Blogger Isaac said...

Yeah, there is that. Given that they made the choice, why aren't they better off? (This bothers me about the paper). The workers have already given up the farm. They are do piece work at home (cottage industry). So that isn't quite the issue. The bigger issue is how do all the capitalists coordinate the withdrawal of the option to do piecework such that all employees are forced to work in the factory? Marglin tries to argue around it....

9:22 PM  
Blogger henry said...

Yes it's different if they are doing piece work with constant returns. But I still think the language of "how do the capitalists coordinate the withdrawal..." is misleading. Because it implies that they were all conspiring together, which I doubt. Maybe that's just the Hayek talking.

Perhaps the reason for the switch is that factory work is more productive and so they were able to pay workers a bit more than they earned in cottage industry. Then they worked more due to the substitution effect. I'm not sure I see why we are assuming that everyone is at their maximum point of labor supply.

3:17 AM  
Blogger Isaac said...

The assumption of point of maximum labor supply is from Marglin (which is probably wrong). The theoretical possibility of maximum point of labor supply is interesting.

I use the language of coordinate to indicate that, yes, it does seem improbable, because you can't get that many people to coordinate.

9:35 AM  

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