The power of simple models …4 August, 2016 at 11:38 | Posted in Economics | 2 Comments
The 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.
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.