Labour Supply Schedule of the Poor: A Commonsense Approach

Abstract

This chapter emphasizes the dissimilarities between the realities of poor societies and the economic conditions analysed in the textbooks while drawing a labour supply schedule. There are three fundamental differences: (1) In poor societies, the family is the unit of labour supply, not an individual. (2) The first objective of a poor family is to meet its subsistence needs by selling labour. This gives rise to the idea of a target income, which in turn leads to a rectangular hyperbola shape of the family’s labour supply curve. (3) The downward slope of the labour supply schedule is for low wages, unlike the backward-bending part of a labour supply curve in a standard textbook, which is for high wages. There are some interesting implications of these three ideas; (1) and (2) lead to a typical sequence in the supply of labourers: Usually, in a poor family first the male, then the female and then the child join the labour force. Consequently, we observe a corresponding wage differential: male wage rate is higher than female wage rate which, in turn, is higher than the child wage rate, even when there is no difference in the productivity. Under such conditions, a rise in the wage rate, or an increase in employment opportunities for adults, caused either by economic change or by public policy and funding leads to a decline in supply of labour, particularly female and child labour. This may be unwelcome for the employers who are enamoured by the abundance of cheap labour. But more and regular adult employment and better wages will improve education and nutrition which will lead to increases in skills and efficiency. In Sect. II, some conspicuous facts suggesting the shape of the labour supply schedule of the poor are discussed. In Sect. III, the labour supply schedule is derived from these facts and common sense; several implications of the curve are drawn. In Sect. IV, our discussion is extended to the issue of differential wage rates of male, female and child labour in a traditional or backward economy. Section V summarises the central message of the chapter.