THE EFFECT OF DISTINGUISHING HOURS AND WORKERS IN PRODUCTION ON LABOUR MARKET EQUILIBRIUM
| Author | Ian M. Dobbs |
| Published date | 01 February 1992 |
| Date | 01 February 1992 |
| DOI | http://doi.org/10.1111/j.1467-9485.1992.tb00601.x |
Sro-ortrsh
Journal
of
Polrrrcal
Economy.
Vol.
39.
No.
I.
February
1992
.
1992
Scottish
Economic
Society
THE EFFECT OF DISTINGUISHING HOURS AND
WORKERS IN PRODUCTION ON LABOUR
MARKET EQUILIBRIUM
IAN
M.
DOBBS*
School
of
Business Management, University
of
Newcastle upon Tyne
I
INTRODUCTION
The importance
of
making the distinction between workers and hours as inputs
into production has often been stressed in the literature on labour demand
(both in empirical work eg. Hart and Sharot, 1977; Leslie and Wise,
1980;
and
in theoretical work eg. Wickens, 1974; Fitzroy, 1981; Plessner and Yitzhaki,
1983; Hoel, 1986) and this fits in nicely with the neoclassical theory of labour
supply which suggests that individuals in
a
competitive economy make a
labour-leisure trade
off
in deciding the hours they wish to supply at any given
wage rate-and indeed whether they wish to supply any hours at all. Naturally,
the latter decision is very much influenced by the reservation level
of
utility
associated with unemployment benefits:
a
typical assumption, for non-
unionised labour markets, is that competition amongst individuals for jobs
leads
to
a situation in which, at equilibrium, marginal individuals are
indifferent as to whether they work
or
not.'
With workers and hours as distinct inputs into production, a single wage rate
(for man-hours) is unlikely
to
yield an efficient outcome. It would seem that
dual wage rates (basic plus overtime)
or
some other bivariate mechanism is
required
to
achieve efficiency. However, according to our model, the nature
of
competition in the labour market leads to an equilibrium involving
a
wage-
hours contract. There is an incentive
for
firms to offer such contracts in
preference
to
simple wage rates and there is
no
incentive to use dual rates
or
separate pricing. This point is
of
interest since competitive labour markets
often do feature wage-hours contracts. Finally, competition by workers for
jobs drives them
off
their notional hours supply curves in the resulting
equilibrium
so
long as production depends on the composition as well as the
total number
of
manhours.
I
would like
to
thank Lynne Evans, Adrian Darnell, Martyn
Hill
and an anonymous
referee for helpful comments.
I
For example, the Liverpool macroeconomic model has this kind
of
assumption for the
non-unionised sector (see e.g. Minford and Peel, 1983, pp. 207-214).
Date of receipt of final manuscript: 4th February 1991.
lA
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