SOME PROBLEMS IN THE THEORY OF LABOUR SUPPLY*
| Published date | 01 February 1970 |
| Author | Laurence C. Hunter |
| DOI | http://doi.org/10.1111/j.1467-9485.1970.tb00485.x |
| Date | 01 February 1970 |
SOME PROBLEMS
IN
THE THEORY
OF
LABOUR SUPPLY*
LAURENCE
c.
HUNTER
I
INTRODUCTION
There has been in recent years a marked growth in the number of studies
on
labour force participation, mostly empirical in character and often
primarily concerned with the secular rise in the activity rates of married
women.’ The present discussion is less concerned with the empirical findings
of these studies, though they do intrude in places, and concentrates instead
on
a
few more theoretical issues underlying the whole analysis of labour
supply.
It
is particularly concerned with the participation decision, but hours
of
work also come into the analysis later, in an attempt to show something
of the relationship between these two sets of important variables which go
to make up the supply of labour.
In
the analysis of labour supply, the main distinction that has to
be
made
is that between the supply of hours of work and the supply
of
workers.
Leaving quality problems aside, we know that supply can
be
altered by
a
change in the average hours worked by a constant labour force, by
a
change
in the size of the labour force, or by some combination of these.
If
employers
want more hours of work from their existing workers rather than more
workers (as they do for reasons of cost or productivity)
an
increase in the
number of workers willing to supply labour services will not meet the
change in demand but may simply add to unemployment. Theoretical
analysis cannot then proceed regardless of the way in which the aggregate
supply of labour hours alters, but must explain the behaviour of workers
both with respect to their hours of work and their participation decisions.
In addition, labour supply theory should be able to account for other
types of labour force behaviour, such as mobility within the labour force
and
the
choice of workers among available jobs, which affect the efficiency
with which labour is allocated among uses, and the quality of the labour
supply itself. Ideally, one would wish to have a single framework capable
of handling all these various aspects. That is, the theory should allow
us
to identify the main labour supply decisions and indicate the important
variables acting upon them.
It
should specify relationships between these
*A revised version
of
a paper read at the A.U.T.E. Conference, University
of
Essex,
1969.
I
am grateful for helpful comments on an earlier draft
to
C.
V.
Brown,
A.
W.
Evans,
D.
I.
MacKay,
G.
L.
Reid and
D.
J.
Robertson.
Particularly Mincer
[lo],
Cain
[2],
and Bowen and Finegan
[I].
39
40
LAURENCE
C.
HUNTER
variables which will yield an explanation of observed behaviour and if
possible yield predictions about future behaviour. Most importantly, it
should be capable of providing explanations both
of
short-run and long-run
behaviour, and provide
a
dynamic link between them, since if it does not
we
will
be left with a vacuum
in
which there is
no
means of moving from
one to the other. In fact, the separation of short and long-run questions
had not been particularly well drawn, perhaps because of complications
in
the meaning of
'
the long run
'
in relation to labour. Three main sets
of
questions can be posed, concerning
i) the short-run response of labour supply to cyclical changes in demand;
ii) the longer-run response to changes in real wage rates, involving a more
permanent adjustment to a new real wage and income position;
iii) the influence of changes in wage rates and incomes on demographic
variables such as age of marriage, size of family, etc., which will deter-
mine future population and hence future supplies of workers.a
The distinction between (i) and (ii) occupies
an
important place in the
following discussion. We begin in the next Section by considering some
existing approaches to the analysis of participation decisions, with special
reference to the case of married women. Section
III
considers some of the
problems that arise in trying to extend one of these approaches to other
types
of worker and in the process throws
up
a suggested amendment to the
basic model. Section
IV
takes a further step in this direction by introducing
job opportunity as a factor in some participation decisions. This in turn
throws new light on the relationships between decisions about hours of work
and about participation, and a diagrammatic representation of this relation-
ship is developed, both for primary and for secondary workers,
in
Section
V.
While this is of necessity
a
somewhat simplified view, it may be useful for
expository purposes as a technique of showing how changes in wage rates
and incomes are related to alterations
in
participation and hours of work.
Conclusions are presented in Section VI.
I1
EXISTING
APPROACHES
i)
The
supply
of
hours.
The supply of labour
is
conventionally taken to
be
a simple function of
its
unit price-the wage rate per unit of labour
supplied. (Prices can be assumed to be constant
so
that changes in money
wage rates are a true reflection of changes in real wage rates.) Traditional
analysis poses the question for the individual
:
how will the supply
of
labour
hours per period change as the wage rate alters? The individual is assumed
2This last effect will be one for the very long run, since it will be
I5
to
20
years
before the effects of income changes (if effects there are) will begin
to
appear
on
new
entries to the labour market. However, since this
is
technically the period of reproduc-
tion of labour, it could be regarded simply as the long run, and hence the possible
confusion referred
to
above, of which there is some evidence in the literature.
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