In the traditional Law of Supply and Demand, if the monetary value additions, the supply will besides increase. But it may really hold the opposite consequence on the labour supply if there is a backward bending supply of labor. That is, addition in pay intends to increase the supply of labor. This essay will concentrate on the ground that causes the supply of labour decompression sicknesss rearward by concentrating on income consequence and permutation consequence. The essay foremost explains the ground why addition in pay intends to increase the supply of labor. The treatment carries out by sing supply of labor as the antonym of leisure demand and pay as the monetary value of leisure. That is, account of the backward flexing supply of labor can covert to illustration of the upward inclining demand of leisure. It so illustrates some premises of the backward flexing supply of labor. The essay eventually discusses the applications of the backward flexing supply of labor. Furthermore, the treatment of this essay besides covers different sentiments of bookmans on the applications of the backward flexing supply of labor.
Explanation of the Backward Bending Supply of Labour
Labour supply curve has a distinguishable feature that it has a backward-bending portion. When the pay is low, as rewards rise, the person will be attracted to higher rewards and so cut down clip for leisure, so labour supply additions. At this phase, the labour supply curve is rightward inclining. However, the attraction of the higher pay is limited. When rewards rises to a certain bound, the labour supply does non increase but cut down. Therefore, the labour supply is traveling to flex backward.
Why does the labour supply curve flex backward? A To reply this inquiry, this essay considers the labour supply, pay, and the relationship between them from a different position. For that, the addition in labour supply means less demand for leisure if hours a twenty-four hours is limited, and frailty versa. There is an opposite alterations between labour supply and leisure demand. Second, rewards really is the chance cost of leisure.A So pay can be seen as the monetary value of leisure. Therefore, the account of the backward flexing supply of labor can be done by explicating why the demand of leisure is upward inclining.
Demand for leisure goods is affected by two facets which are the permutation consequence and the income consequence. Demand for leisure has reverse alterations with the monetary value of leisure because of the permutation consequence. If the monetary value of leisure additions, leisure will surely go more expensive than other trade goods, which besides means that the chance cost of leisure addition. As a consequence, the person would necessitate less leisure and expression for other permutations alternatively. However, demand for leisure has the same alterations with the monetary value of leisure when sing the income consequence. Increase in leisure monetary value agencies that the existent income is raised, since the person will acquire more income with the same degree of labour supply, which is to state, he could work fewer hours to keep the same ingestion forms of goods and services. Sing both of the permutation consequence and the income consequence, the alteration of demand for leisure with the addition in pay depends on the power of these two effects. Since most of the person ‘s income likely comes from his labor supply, that increase in pay will increase, ceteris paribus, the income of the person unusually. Thus the income consequence from the alterations of leisure monetary value is much greater. If pay is all ready on a higher degree with larger graduated table of labour supply, addition in pay will take to important addition in labour income. As a consequence, the income consequence dominates the permutation consequence that makes the supply of labour decompression sicknesss rearward.
In short, pay additions that can do the person good off to a certain grade, so he will prefer more leisure time.A Therefore, when pay reaches a certain tallness and continues to better, the person ‘s labour supply does non increase but diminish. That is the ground why the supply of labor bens rearward.
Premises of the Backward Bending Supply of Labour
The backward flexing supply of labor is based on some of import premises. First, the supply of labor being discussed above focal points on the single graduated table, though it includes three different graduated tables: the person, the industry and the economic system graduated table ( Wallace and Myles S. , 1981 ) . This is because that the person can manage his working clip freely harmonizing to his involvement. Besides, working hours and work attempt are treated as the same thing.
Second, work is an inferior good with weak snap. This means, there is an opposite alterations in the demand of labor and the income. Leisure is the permutation of labor. Therefore, pay can be viewed as the monetary value of leisure. Since the single intends to maximise his public-service corporation within a fixed figure of hours ( merely 24 hours a twenty-four hours ) . So, the person has to make up one’s mind the hours spent on work and the hours spent on leisure, which is so called chance cost of leisure. Then the public-service corporation he additions from purchasing goods with the income he earns in the last hr will be the public-service corporation he would acquire from the last hr of leisure clip.
Finally, the income consequence of a higher pay is stronger than the permutation consequence. A rise in pay is viewed as bring forthing both an income consequence and a permutation consequence ( T. Aldrich Finegan, 1994 ) . With the permutation consequence, when pay additions, the person will pass more clip in work, and the labour supply additions. With the income consequence, when pay additions, which means that the person is much better off, and he will really supply less on the job clip, therefore the supply of labour lessenings. Furthermore, most of the person ‘s income likely comes from his labour supply. Under this circumstance, addition in pay will increase the income of the person unusually. As a consequence, the income consequence dominates the permutation consequence. However, Chung-cheng Lin ( 2003 ) held that the supply of labor would flex backward in the absence of an income consequence. This is because that on the job hours and work attempt are treated as distinguishable variables which is different from the conventional premises that see them as being the same thing. An addition in pay tends to increase two direct permutation effects that motivate the person to supply more attempt and hours. When the work attempt is greater adequate to cut down the working hours, the supply of labor may flex backward without the income consequence.
Applications of the Backward Bending Supply of Labour
Based on the above premises, the backward flexing supply of labor is “ widely considered applicable in peculiar labor markets in any economic system ” ( Harold G. Vatter, 1961, p. 579 ) . The backward flexing supply of labour applies to about all signifiers of labor and this phenomenon is world-wide ( P. J. D. Wiles, 1962 ) . There was a backward sloping supply curve of labor in Africa for that Africans were rational and wanted to maximise their single public assistance ( Elliot J. Berg, 1961 ) . Particularly, in little farms where labor plays a larger portion in the husbandman lives, the application of backward flexing supply of labor is more evident ( Kenneth Boulding, 1955 ) . For illustration, at the beginning of Industrial Revolution of late 1900s, many husbandmans did whirling and weaving at place to gaining more money, so at that clip, there was a great addition in their rewards and incomes. Therefore, the high degree of income made many husbandmans to cut their clip for work so as to bask more leisure clip. This empirical experience can turn out that the supply of labor is rearward flexing ( Karl E. Case, Ray C. Fair and Sharon Oster, 2008 ) .
However, some bookmans held different sentiments on the application of the backward flexing supply of labor. The backward flexing supply of labor indicates that, at lower pay, the supply of labor will diminish as pay diminutions. Yet the American experience from the 1970s to the mid-1990s, fails to back up it ( Robort E. Prasch, 2000 ) . For that, during these periods, pay was falling or stagnating, but the labour supply really increased. In fact, aside from the person ‘ desire for his paid vacations and paid careers there is no grounds in recent experience that he wants shorter working clip ( T. Aldrich Finegan, 1994 ) .
In decision, under certain premises, there is a backward bending supply of labour screening that when pay additions, the supply of labor may really besides addition, which is opposite to the consequence in traditional Law of Supply and Demand. The account of the backward flexing supply of labor can be done with the illustration on the upward sloping leisure demand. It is chiefly the fact that the income consequence generated by higher degree of pay is stronger than the permutation consequence causes the supply of labor flexing backward. However, the backward flexing supply of labor is based on some of import premises, such as single graduated table of labour supply, permutation between labor and leisure, important income consequence and so on. Furthermore, the backward flexing supply of labor is applicable under these premises. It is widely accepted that there is a backward bending supply of labor in Africa and in little farms during the early periods of the Industrial Revolution. However, there are besides some dissensions on application of the backward flexing supply of labor.