A Negatively Sloped Hicksian Labour Supply Curve?

by the Sandwichman

The report of French President Nicholaus Sarkozy's Commission on the Measurement of Economic Performance and Social Progress, issued Monday, contains 184 instances of the word 'leisure'. The following, though, is from the Reflections and Overview of the Commission's principals, Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi:

Surely, if one society chooses to limit its consumption of material goods, enjoying more leisure, including time devoted to culture, the arts, and community engagement, it should not be counted against it. Citizens in such a society might be far happier than in one which works longer hours, spending less time both with the family and in the community. Citizens in the hardworking society complain that, while they are working hard for the family, they have no time left for the family. Yet, our conventional measures would attribute better economic performance to the harder-working and unhappier society: both incomes and growth would be higher. Furthermore, the increase in average working time may be itself the consequence of the society’s malfunctioning. If inequality becomes pervasive, the number of persons who have to work harder to ensure their living may greatly increase (there is a negatively sloped Hicksian labour supply curve): they may claim that they have no choice but to work harder (though of course they could, were they willing to accept a much lower standard of material consumption than other citizens). It would be questionable whether this evolution is welfare-enhancing, even if GDP increases as a consequence.

If leisure is a normal good... But, what if leisure isn't a normal good?

The canonical labor supply model treats leisure as a normal consumption good, which is questionable, to put it mildly. Below a culturally-determined income threshold, non-working time ceases to be available for use as leisure and instead becomes unemployment -- that is, a disutility rather than a utility. Likewise, for most occupations, there is an optimal length of working day and week in which the work itself enhances quality of life, aside from the income received from working. That optimum is likely to be rather dynamic and unstable. Indifference curves do not provide a suitable representation of these effects taken together.

At the end of their Reflections, the authors express the hope that their report will provide the impetus for a broader discussion of "societal values, for what we, as a society, care about, and whether we are really striving for what is important." This is a discussion, incidentally, that Sydney J. Chapman called for 100 years ago in the concluding paragraph of his "Hours of Labour":

Tangible things force themselves upon our attention as the more intangible do not, and some of us who have an economic bent of mind get into the way, in consequence, of thinking too much of the quantity of external wealth produced and too little of the balance between internal and external wealth. In ultimate terms, to those who care to put it that way, all wealth is life, as Ruskin insisted. There hardly appears to be any risk of a general underrating of external goods, but there is some risk of an underrating of the new needs of the life lived outside the hours devoted to production – which should themselves be, not a sacrifice to real living, but a part of it – and of an underrating of the dependence even of productive advance upon the widespread enjoyment and proper use of adequate leisure and an adequate income.

Sidney Chapman's theory of the hours of labour, published in September 1909 in The Economic Journal, was acknowledged as authoritative by the leading economists of the day. It provided important insights into the prospects for market rationality with respect to work time arrangements and hinted at a profound immanent critique of economists' excessive concern with external wealth. Chapman's theory was consigned to obscurity by mathematical analyses that reverted heedlessly to outdated and naïve assumptions about the connection between hours and output. The centenary of the theory's publication offers an occasion to reconsider what has been lost by economists' neglect of Chapman's theory.