Chapter 13. Malnutrition and Rural Labor markets

1
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 ones capacity to work.

2
The capacity curve
Huge gains in work capacity occur initially as
income rises but, beyond point A, increase at a
decreasing rate.
work capacity
A
income
3
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)
v2
v3
v1
work capacity
A
income
4
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.

5
As a result, the labor supply curve resembles the
following.
This kink corresponds to the tangency of v to the
capacity curve
piece rate
v3
Below v3 the effort I can supply falls sharply
quantity of labor supplied
6
Superimpose a normally shaped labor demand curve
on this and note the following
For high levels of labor demand the labor market
functions normally
LS
piece rate
LD
quantity of labor supplied
7
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!
LS
piece rate
LD
quantity of labor supplied
8
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.
LS
piece rate
V3
LD
A
B
quantity of labor supplied
9
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)

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Inequality and labor market equilibrium.
Property of ones 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.
work capacity
A
income
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Inequality and labor market equilibrium.
v3
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.
work capacity
A
income
12
Inequality and labor market equilibrium.
v3
At v4 I still have the capacity to work but just
barely.
v4ltv3
work capacity
C
A
income
13
The minimum wage that one can work for depends on
ones wealth.
The preceding implies that for the landless the
minimum scale of pay they can work for
effectively is v3
minimum piece rate
v3
i
individuals
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The minimum wage that one can work for depends on
ones 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.
minimum piece rate
v3
i
individuals
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The minimum wage that one is willing to work for
also depends on ones wealth.
The more land I hold the more I can produce and
hence the more I must be offered to work.
minimum piece rate
v3
i
individuals
16
The solid line represents a combination of the
willingness and ability to work curves
minimum piece rate
v3
i
individuals
17
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.
minimum piece rate
v3
Z
i
individuals
18
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.
minimum piece rate
v
Z
A
B
individuals
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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.
minimum piece rate
v
Z
C
D
individuals
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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
v
work capacity
A
income
21
Taking land away from the rich landholder and
giving some to the landless peasant does the
following
It increases the formerly landless peasants
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.
v
work capacity
A
income
22
As far as the rich landholder is concerned ...
indiff curve 1
This should increase his willingness to work.
prod fn 1
QA
indiff curve 2
prod fn 2
Labor effort
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The shift encourages more effort

• But since he is on a lower indifference curve he
  will not be happy about the changes taking place.

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Given the demand for labor we should see the
following
piece rate
S(pre-reform)
LD
quantity of labor supplied and demanded
25
Given the demand for labor we should see the
following
As employment increases, production and hence
real income increases.
piece rate
S(pre-reform)
S(post-reform)
LD
quantity of labor supplied and demanded