fatvegan

Economists throw around phrases like "labour market" heaps. In fact they use it to justify lots of things. Like cutting minimum wage, and blaming the laziness of workers for unemployment, and cutting taxes. Labour markets sound like a nice simple idea, and they're especially good because you can use the same diagrams that you use for other markets when you're teaching university courses.

But unlike with other markets where you can try and guess what the supply and demand curves would look like if you were more clever, I don't think anyone is even able to guess what a labour supply curve looks like. Or perhaps if we did make some real guesses, we'd realise how unlike other supply curves the labour supply curve is. To make our diagrams neat, we always use a straight line, or a slightly curving line that starts low and goes upwards. It means you have lots of room on your diagram to make shifts in the supply curve and demand curve and to write labels on the axes showing your prices and quantities. So a well-behaved line is good for some things, but I suspect it's a very bad idea for trying to approximate reality or other similar creatures. Unlike other supply curves which I think do a reasonable job of approximating reality.

I think if we really tried hard to make a sort of realistic labour supply curve we'd discover that a) we weren't able to or; b) we could make one but it was crap for doing things like teaching students or deciding what minimum wage should be. The labour supply curve could kind of be equated with an existence demand curve. A curve might exist, but it would be totally wacky. When people are deciding between work and death it really wreaks havok with your elasticities. I would suspect that living is important enough to people that even while a person was secretly attempting to violently overthrow the government they would still be willing to work at a factory for $2 an hour if that's what it took to feed themselves. So our labour market curves might actually conclude we'd reached an efficient market outcome at the precisely the same time as modelled workers were marching on parliament.

Most market models tell you what people are happy to do. Labour market models tell you what people are willing to do until the revolution arrives.

So the moral of my story is, just because a labour market model tells you to do something, doesn't mean you should.