Over-Supply of Labor: Behavioral Economic Roots of Labor Supply, Overwork and Overemployment
Global Business & Economics Review, 2002
Posted: 24 Jan 2010
Date Written: 2002
Contrary to the neoclassical theory of labor supply, it is argued here that the supply of labor is best modelled as a function of target market income and target non-market time which are, in turn, structured by an individual's hierarchy of needs. Thus, increasing wage rates need never result in a reduction of labor supply. Moreover, greater labor supply, even when it is a product of a worker's preferences, as well as when it is a product of work hours constraints imposed by the firm on the worker, can generate systematic and sustained welfare losses in the form of overwork and overemployment, respectively. These represent market failures not easily captured by conventional economic theory. Some of the microeconomic and macroeconomic sources of contemporary increases in both overwork and overemployed and also discussed.
Keywords: Labour supply, Income, Time, Wage rates, Work hours, Market failure, Overemployment
JEL Classification: D03, J21, J22
Suggested Citation: Suggested Citation