Chapter 13. Malnutrition and Rural Labor markets In chapter 8 we introduced the capacity curve. It shows the relationship between income (and presumably nutrition) and one’s capacity to work.
Dec 14, 2015
Chapter 13. Malnutrition and Rural Labor markets
In chapter 8 we introduced the capacity curve. It shows the
relationship between income (and presumably nutrition) and one’s
capacity to work.
The capacity curve
Huge gains in work capacity occur initially as income rises but, beyond point A, increase at a decreasing rate.
Imagine that you are paid a piece rate for the work
you do. The more work you perform the higher your income. How much higher is given by the slope of the line,v. Therefore the slope of this line corresponds to the
piece rate. (The flatter the line, the higher the piece rate)
Kinks in labor supply
Note that as the piece rate falls your ability to supply labor falls sharply. Below a piece rate of v3 it becomes
impossible to work.
As a result, the labor supply curve resembles
the following.This kink corresponds to the tangency of v to the capacity curve
Below v3 the effort I can supply falls sharply
Superimpose a normally shaped labor demand curve on this and
note the following
For high levels of labor demand the labor market functions normally
Superimpose a normally shaped labor demand curve on this and
note the following
For low levels of labor demand there exists an equilibrium in this market with involuntary unemployment!
There is involuntary unemployment in the sense that the distance AB represents a quantity of labor workers would willingly supply at v3. Note that a reduction in
wages is not possible! If the piece rate falls below v3 there will be excess demand in
rural labor markets forcing wages back up to v3.
As D. Ray points out ...
“We see, then, that the vicious circle is complete in this little model. Lack of labor market opportunities makes for low wages, but it is not only that wages
determine work capacity: a low work capacity feeds back on the situation by lowering access to labor
markets.” (Ray, p. 493)
Inequality and labor market equilibrium.
Property of one’s own (by providing another source of income) raises work capacity. As a small landholder, my wife and children work our land while I go out and work for a large landowner.
Inequality and labor market equilibrium.
At v3 I can work far more and earn more than my neighbor who owns no land. All he has to survive on is what he makes. What I make is over and above what my family produces with our little parcel of land. I arrive to work fed. He arrives hungry.
The minimum wage that one can work for depends on
one’s wealth.The preceding implies that for the landless the minimum scale of pay they can work for effectively is v3
The minimum wage that one can work for depends on
one’s wealth.Therefore i represents the total number of landless workers. The remaining people within this labor market are arranged in ascending order of their landholdings.
The minimum wage that one is willing to work for also depends
on one’s wealth.
The more land I hold the more I can produce and hence the more I must be offered to work.
Up to point Z ability to work is the effective constraint on the labor market. To the right of point Z willingness to work is the effective constraint.
At a wage rate of v* the quantity of labor supplied
would be AB.Individuals to the left of A cannot work as much as they might like to at that wage. Individuals to the right of point Z certainly can work but choose not to.
At a wage rate of v** the quantity of labor supplied
would be CD.CD. Individuals to the left of C cannot work as much as they might like to at that wage. Individuals to the right of point D certainly can work but choose not to.
The effect of land reform on labor market
conditions. At v* the landless peasant is effectively locked out of the labor market. He is like the clumsy little kid during recess when teams are chosen that nobody wants on their team. Meanwhile, whether he wants to or not, the rich
landholder could certainly work at a rate of v*
Taking land away from the rich landholder and giving some to the
landless peasant does the following: It increases the formerly landless peasant’s work capacity. Before he was willing to work at this wage but was simply unable to do so. This leads to an increase in the effective quantity of labor supplied at v*.
The shift encourages more effort
But since he is on a lower indifference curve he will not be happy about the changes
taking place.