The Structure of Labor Supply

Abstract

The aggregate supply of labor is by no means homogeneous. But it is composed of at least three behaviorally distinct types: worker-consumer households, producer-consumer households and households for the family firm of which it is inevitable to produce household goods since the external supply of these goods is limited. The supply function of labor for a producer-consumer household proves to be more elastic by the effect of family employment or the employment of labor by its family firm than that of a corresponding worker-consumer household which lacks a family firm. As there is a rise in the market wage rate, the family firm reduces its employment of labor so that the household adds to the supply of labor by its family members hours of labor freed from its family firm. By contrast, when there is a fall in the market wage rate, the family firm expands its employment of labor so that the household deducts from the supply of labor by its family members hours of labor additionally employed by its family firm. Thus, the supply function of labor by a producer-consumer household is rendered more elastic by the effect of family employment than that of a worker-consumer household which lacks a family firm but is similar otherwise.