The labour supply function is the number of hours an individual or group of workers are willing to work for different wage rates.
A new method, based on subjective well-being data, was applied to a data sample for single male employees from the ‘Household, Income and Labour Dynamics in Australia Survey’ and found increases in wages have little impact on the number of hours they are willing to work.
However, once divided into two groups, those with high job satisfaction were happy to work far longer hours than those with low job satisfaction at any given wage.
Both the high and low job satisfaction groups worked the same average week of 43 hours.
However, the group with low satisfaction reported being less happy with the number of hours worked.
This group was more responsive to changes in the wage rate, becoming more willing to work longer hours as the wage increases.
The traditional, neoclassical microeconomic model infers the utility function from hours worked and wages by assuming that each worker is at their utility maximising point by gaining the greatest value from the least effort.
The proposed new empirical method uses data on life satisfaction to explicitly estimate the utility function, which can then be used to derive the labour supply schedule and responses to wage changes. It can also take into account factors such as job satisfaction.
Study author and Curtin University Centre for Labour Market Research’s Alfred Dockery says the new method overcomes some of the barriers of the neoclassical method.
"Neoclassical models assume that people are free to choose the number of hours they work and that this choice will always reflect their utility maximising point,” Dr Dockery says.
"This doesn’t take into account Australian working cultures which tend to require people to choose between full-time and part-time, or full-time work and unemployment.
"Nor does it account for the tendency of modern societies towards a culture of overworking which means workers often overestimate the utility gained from status and income and work beyond the number of hours that maximise their well-being."
The findings suggest people are working longer hours than is optimal for their well-being.
The average reported working week was 43 hours, while the models suggest optimal hours are a maximum 40 hours per week and 23 hours for those with low job satisfaction.