—–Original Message—–
From: NF
Sent: Mon 10/10/2016 8:32 AM
To: Walter Block
Subject: Backwards Bending Supply Curve of Labor
Dear Prof. Block:
The usual reason for supporting the existence of backward bending supply curves is the case of a person being paid high wages and at that wage preferring leisure after a certain amount of money is saved up. While the Austrian critique of backwards bending supply curves is that after a worker quits at that high wage, another person will take the job, so that individual backwards bending supply curves would not result in a market backwards bending supply curve. What if the wages of all workers rise? Isn’t it true that people overall might work less if all wage rates rose to $1,000,000 an hour? Thanks, NF
Dear NF (he is a very bright student in my labor econ class at Loyola):
How dare you question your professor? You have a lot of nerve! You’re supposed to take everything I say as gospel, certainly not think about it, and just spit it back on the exams. I’m gonna have to kick you out of the class for insubordination.
Ok, ok, on a more serious note, this is a very, very good question, challenge on your part. No, an excellent one. You’re now talking about a supply curve. But, remember what I said about the demand curve, and the Austrian rejection of the Giffen good’s creation of an upward sloping demand curve? What I said then is that both demand and supply curves are supposed to be drawn on the assumption that only two things change as you move along them: price and quantity. The problem with the Giffen good – upward sloping demand curve is that something else also changes as we move along it: income. So, the Austrian demand curve, where neither income, nor anything else, changes as you move along it, is not vulnerable to this Giffen good – upward sloping demand curve charge. No, demand curves slope downward, period, and this is a praxeological necessity.
A similar analysis applies to the supply curve. If one person’s income changes, as a practical matter we can pretty much ignore this when drawing up a supply curve of labor for the entire economy; at least that’s what the neoclassicals do. But, you rotten kid, you posit that everyone’s income does this, and, then, certainly, we cannot ignore this, as a practical matter. So, we now borrow a leaf from the Austrian analysis of demand curves, and apply it to your scenario of vastly increasing wages: The Austrian supply curve, like its demand curve, abstracts from everything else except prices (wages in this case) and quantity. For the demand curve, if incomes rise, it shifts, to the right for normal goods, to the left for inferior goods. Similarly, if incomes rise, and people want more leisure, then the supply curve shifts to the left. We do not get any backward bending part of it, which is equivalent to a downward sloping supply curve, forsooth.
You’ll remember that I went over the individual backward bending supply curve in the first week of class, saying that this treatment was just a superficial analysis, and that we’d get to this in greater depth when it arose in our textbook. Well, what I was giving you then was merely a mainstream neoclassical analysis, which allows for the backward bending supply curve (BBSC) of labor, but only for the individual, not for the entire market. However, the greater depth Austrian analysis applies, also, to the individual supply curve. It says that here too that the only things that can vary are price (wages are the price of labor) and quantity. But the individual BBSC-L allows a third thing to vary: income. When we abstract from that, we get curve shifts, not movements along weirdly shaped supply and demand curves.
For a more advanced Austrian treatment of this issue, take a peek at this article:
Barnett, William II and Walter E. Block. 2010. “Mises never used demand curves; was he wrong? Ignorant? No: The Antimathematicality of Demand Curves.” Dialogue, Vol. 1, pp. 23-31, March; http://www.uni-svishtov.bg/dialog/title.asp?lang=en&title=101
2:45 pm on October 10, 2016 Email Walter E. Block
