The Social and Political Economy of the Household

By Michael Anderson; Frank Bechhofer et al. | Go to book overview

4
The Labour Market: Friend or Foe?*

BRIAN G. M. MAIN


INTRODUCTION

Standard economic theory portrays economic agents as experiencing a life cycle of consumption expenditures which are out of phase with income flows. The corresponding income flows, principally from earnings, are seen as lagging behind consumption expenditures but as reaching a peak in excess of consumption sometime in the later part of the life cycle. Eventually, on retirement, income once again falls below consumption outgoings. The pattern of consumption expenditures is much smoother than that of income flows. The two streams of outgoings and income are reconciled by recourse to the capital markets, that is, by borrowing and lending (saving). Recent developments in economic theory, particularly under the 'new classical school', 1 place considerable emphasis on the disconnectedness of consumption from labour supply. Subject to a need to 'balance the books' over the full life cycle, agents are regarded as phasing their labour supply in a way that reflects the labour market rewards available at any time.

As an hour of labour supply can be thought of as the sacrifice of an hour of leisure, then the wage rate reflects what is given up for every extra hour of leisure consumed, that is, for every hour not supplied to the labour market. From this perspective, the wage rate can be viewed as the price of leisure. The logic behind the new classical school's approach is that economic agents will consume more leisure (supply less labour) when the price of leisure (wage rate) is low and will consume less leisure (supply more labour) when the price of leisure (wage rate) is high. This

____________________
*
I am particularly grateful for the support of the University of Edinburgh team. Remaining errors are my own.

-133-

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