According to the orthodox theory, the market supply of any resource usually is in direct dependence on a price level on a resource, that is the curve of the market supply usually is ascending. But in the market of work the sellers are not the firms aspiring maximize the profit, and people aspiring to the maximal satisfaction of the needs (and not just the income).
Typical curve of the supply of labor is the ascending line, that is connected to necessity diversion of the employed worker from other kinds of activity by payment of higher salary. But there are also return curve of labor’s supply. The alternative – leisure is reflected in them which is chosen by the hired workers at enough high level of payment of work.
Thus, the neoclassic approach excludes unemployment, and its presence explains by voluntary character by the worker and their aspiration to maximum favourable work.
In the given essay we shall analyse a urgency and questions at issue of the orthodox approach. It is connected that the validity dictates the rules and forces to look at traditional things from other points of view.
The supply of labor is determined by the following factors:
1) by number the population and first of all by number of the able-bodied population;
2) by average quantity of working hours for the certain time (for one week, month, year);
3) by qualitative structure of the population, its qualifying level appropriate structure.
If, the factor of manufacture is the work, the worker, instead of firm make a decision on the offer of services of work. In this case maximization of utility, instead of maximization of the profit is the main motive of the supply of the factor. By virtue of it the curve of the offer of work is bent in the opposite direction (Backward-bending), i.e. higher wages can cause the smaller supply of work.
Fig. 1. A bent in the opposite direction curve
The offers of work.
Such kind of a curve of the offer of work is defined by that in market economy the labour in the market of the factors of manufacture acts as the goods. As well as in the other commodity markets, the subject of its supply is the proprietor of this factor of manufacture – worker, individual. The cumulative supply of labor in the market of work represents the sum of the individual curve of supply’s. As a whole it depends first of all on number of the able-bodied population, and also from subjective reaction of the individual to intensity of work. In such conditions the supply of a labour depends on behaviour of the man. In this case by alternative to work the leisure acts. Therefore to analysis is subject the distribution of the limited daily fund of time, which has the man, between various kinds of activity. All kinds of no-charge activity, major of which are consumption of the material boons and services, work on the house, reception of education, rest, in the neoclassic economic theory are united by the term “leisure”. The precondition of the neoclassic analysis of the market of work is the specific approach to motivation of work – unique motive of labour activity is the reception of the income, which man can spend for purchase having for him by utility of the goods. The optimum distribution of individual time between work and leisure is defined by two factors: by structure of preferences of the given individual and budget restriction. It is known, that the significant part of the population of any country voluntary refuses participation in the market of work, making a choice for the benefit of a maximum of leisure and complete failure of the labour income. In the majority of the advanced countries the share of a cumulative labour in the able-bodied population makes from 50 up to 70 %. Others 30-50 % of the able-bodied population get in a category “ outside of a labour ”, i.e. by virtue of those or other reasons do not enter into a market work. In postsocialist countries up to formation of the market relations the opposite situation – was characteristic is disproportionate high involving of the population in public manufacture. The work on hiring covered about 90 % of the men and more than 80 % of the women of able-bodied age, that makes in essence physical limit and can be characterized as superemployment.
To explain a phenomenon of complete preference of leisure, it is necessary to consider, in what cases and under what influence of the factors the decision about absence on the market of work can be accepted. It is obvious, that a necessary condition is the presence any of a source of the income directly not connected to participation concerning the market of work and allowing to have even by a minimum of means to existence. Secondly, the preference of leisure is explained by high value of leisure and readiness to offer for the sake of it the significant income.
For formal – graphic representation of the given conclusion we shall consider, how the worker makes a decision on that, how many hours per day (weeks per one year) he will work. The day is divided at hours o’clock and leisure-times minus 8 hours of dream.
L=L*- Le, where L- hours of work, employment,
L * = 24-8.
Le – leisure-times.
The hour rate of wages defines the price of leisure, i.e. that quantity of money (goods), which should refuse working to receive an additional leisure-time. Therefore function of utility for the worker is a function of utility of the various goods, which can be bought on the salary, and leisure, as alternatives of work, as the work is not desired. Imputed costs of leisure is a consumption of all goods: Rx*X=W (Lx-Le)
??? U (Le, ?), budget restriction: ??*x +WLe = WLx, PQ=WL. It means, that the wages W act as the price of leisure, Imputed costs of leisure; the additional leisure-time is equal to an additional business hour: of commodity units ? represents cost of one unit of leisure.
Fig. 2. A curve of indifference of the worker at change
On a horizontal axis – quantity of leisure-times per day, on vertical – income brought by work. Bisector – equal utility of work and leisure – the additional leisure-time is equal to additional hour of work. A – initial point with wages Wo and budget restriction WoE. What will take place, if the wages will decrease? Let WI ; Wo.
Then the worker prefers leisure to underpaid work. The budget restriction accepts a kind WIE, worker maximize utility in a point B. At growth of wages with Wo up to W2 the budget restriction rises in a situation WIE, worker maximize utility in a point C.
Fig. 3. A bent in the opposite direction curve of the individual supply of labor
Having transferred points A, B, C on an axis of coordinates ” employment – salary “, we receive a curve of the individual offer of work, in which basis dynamics of demand on leisure lays. This dynamics is determined on the basis of interaction of two effects: the income and replacement by analogy to the commodity market – the change of wages (price of work and leisure) is accompanied by effect of replacement and income effect. The income effect consists in an opportunity of purchase of additional quantity of the material boons as a result of increase of the available income. As leisure – normal goods, the part of the in addition received income will be used just on purchase of leisure. Differently, there will be an increase of time removed on nonmarket activity, and reduction of time of work. Such assumption has the more bases if to take into account, that the utility is taken by the man not from the goods as such, and from process of their consumption, which is necessary assumes expenses of time. Thus, the income effect works in a direction of decrease of the supply of labor in process of growth of the income and increase of the offer of work in process of its fall. An opposite orientation there is a substitution effect. It is shown that in process of growth of wages grow and imputed costs of leisure. Imputed costs reflect that maximal utility, which can be received at use of the given interval of time by an alternative way. Alternative of leisure is the work for compensation. In process of increase of compensation imputed costs grow. Now each additional leisure-time requires failure of the greater size of the income, hence, of lot various consumption’s value, which could be acquired on the received income. According to the theory of a consumer choice the consumption of any normal goods decreases with growth of its price. Therefore increase of the price of leisure represents the factor of reduction of its consumption or, that same, growth of the offer of work. Thus, the substitution effect works in a direction of increase of the supply of labor of growth of the income and reduction of the supply of labor in process of its fall. By virtue of opposite action of an income effect and substitution effect dynamics of payment of work can render ambiguous influence on volume of the supply of labor on the part of this or that concrete man. Let’s consider an income effect and substitution effect (with respect to Slutsky).
According to figure 4, in the beginning, when the rate of wages raises with W1 up to W0, works effect of replacement – worker reduces leisure. The supply of labor grows and reaches a maximum in a point A. Further begins to dominate income effects working at higher rates the salaries and expressing that higher wage increases the income of the worker, and he can buy a lot of the boons, including leisure – more high level of the income induces to reduction of a working day. On these pieces of a curve of the offer of work an income effect and effect of replacement have the different marks. Resulting is defined by a parity of absolute sizes of these two effects. If the effect, replacement took place only, higher rate of wages would induce the worker to work L ‘ of hours (point D) instead of L2. However income effect works in an opposite direction. It surpasses effect of replacement and reduces a working day up to L2.
Fig. 4. Effects of replacement and income at increase of the rate
The preferences of each man are strictly individual. Therefore inevitably huge variety of the curve individual offer of work. The certain laws nevertheless are revealed, according to which behave of the curve individual supply of labor of various categories of a labour. So, dynamics of the supply of labor of the men and women essentially differs. At the men, as a rule, rather quickly there comes a phase of domination of an income effect, and the curve of the offer of work has the above described form. For the women dominant is the substitution effect. One of possible theoretical hypotheses for experimental check is, that the additional income allows them to employ home’s servant and to use unleash time for work on hiring. From here, in particular, there is a directly proportional dependence between growth of the hourly income and offer of work on the part of the women. Similar sort of “subtlety” it was possible to find out in the countries with the advanced market economy. In conditions of a socialistic system legislatively regulating the order of participation of a labour during public work, duration of working hours and practically of not giving opportunity incomplete, hourly and other flexible forms of employment, the individual supply of labor was in most cases rigidly regulated in the most various aspects and a little bit changed under influence of changes of real wages.
The offer of work differs from the offer of other kinds of resources, that is determined by the human factor. The man himself defines optimum for itself a parity of an operating time and leisure. But as the human factor is unpredictable also reality constantly dictates new rules, the behaviour of a labour in the market of work leaves for frameworks of the orthodox theory. It is connected to such characteristics:
1. Motivation of work. In neoclassical theory it is only income. But today motivation can be determined by image of work, social status, advantages and privileges from the given kind of activity, noordinary.
2. It is impossible to all countries to apply the same approach, as different types of the countries (depending on a level of development, culture, the religions and others) have the different supply of labor.
3. The ratio of time between work both leisure for the men and women any other business, that is caused by the objective and subjective factors.
Thus for today neoclassical theory does not display that validity, in which we live. And this absolutely normal phenomenon, as it causes new searches and researches new opening new knowledge and new theories.
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