The power of simple models …

4 August, 2016 at 11:38 | Posted in Economics | 2 Comments

untitled2The need for coworker interaction explains the existence of a common workweek, but not why that workweek is 40 hours long instead of 30. This is the question that the economic model of labor supply really helps us to answer. The model says that the workweek is 40 hours long because, on the average, that’s how long workers want it to be. If most people found an extra hour of leisure much more valuable than an extra hour’s wage, profit-seeking employers would have an immediate incentive to reduce the length of the workweek. Here again we see the power of a simple theory to help explain what people do, even when they themselves correctly perceive that the proximate reasons for their actions are beyond their control.

Mirabile dictu!

The power of a simple theory?

Real people admittedly do not act according to the model, so how on earth are we supposed to consider the ‘explanation’ the model produces helpful for understanding real world labor market supply? Nonsense on stilts.

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  1. We should not be interested in individual people because it makes the model too complex. We should be concerned with all of them together having a number of aggregate ways of behavior. How else can we get to understand what is really going on?

  2. There are at least two distinct things Robert H Frank, author of The Economic Naturalist, does wrong in the quoted passage. At least two things I can readily identify anyway.
    .
    First, he ignores the fact of the political enactment of the 40 hour week in law.
    .
    The second is embodied in this curious sentence: “If most people found an extra hour of leisure much more valuable than an extra hour’s wage, profit-seeking employers would have an immediate incentive to reduce the length of the workweek.
    .
    I mention The Economic Naturalist because in that book Frank actively encourages the kind of fatuous explanation, bereft of critical thinking, on display in his wave of the hand at the forty hour week. In the introduction to that book, he holds up as exemplary a student’s explanation for why drive-up ATM machines have Braille instruction plates — standardization is cheaper — and dismisses the counter explanation offered by a disgruntled reader of the first edition — that disabilities law requires the Braille as an accommodation for the disabled. He does not like to admit the political.
    .
    The idea that the profit-seeking employer would be nice is a profoundly reactionary conservative sentiment. Frank is often identified as somewhat left of centre, at least by the standards of American mainstream economists, but this presumption that the profit-seeking employer would choose the socially optimal practice is just the illusion of a reactionary. Or, it would be, and recognized as an illusion, if it was not widely and uncritically accepted in the profession as the normative implication of the theory of profit-maximizing behavior by the firm.

    Strictly speaking, the theory implies something else — that workers as suppliers of labor would want to bargain against the opposed interests of the employers who have no reason to know or care about an employee’s marginal valuation of leisure. So, though we can certainly fault the theory, we ought in this case to first fault the theorist.


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