As I try to educate myself in the basics of economics, I’m uncertain how much I should post here. If I put up every thought that crosses my mind, the blog would be unutterably tedious, and I’d never get any reading done. But I often want to express bafflement or disagreement – and that’s what the blog’s for.
Very quickly, here’s a passage from my textbook (Krugman, Wells and Graddy, ‘Economics: European Edition’, 2007):
“Economists believe that the substitution effect usually dominates the income effect in the labour supply decision when an individual’s wage rate is low. An individual labour supply curve is typically upward-sloping for lower wage rates, as people work more in response to rising wage-rates.” (p. 319).
I just don’t see how this can possibly be right. Putting aside the more general problems with labour supply curves (e.g.: we mostly don’t choose how much of our labour to supply – the amount of labour we end up selling is massively determined by social structures we have no control over: the five-day week; the ‘nine to five’; ‘voluntary’ overtime; and that’s just in economies characterised by a reasonable degree of personal wealth and leisure time)… putting aside such problems, and taking the labour supply curve as given… I just don’t see how it could be accurate to say that “[a]n individual labour supply curve is typically upward-sloping for lower wage rates”. Surely at the lowest wage rates people work most. Those who survive on subsistence wages spend their whole lives working for those wages. That’s the problem. Krugman et al. can’t seriously be suggesting – can they? – that in the lowest income brackets, the lower the wages, the longer the ‘leisure hours’.
Is the backward-bending individual labour supply curve really an economic orthodoxy? If so, why?