Labor shortages during the COVID-19 and labor supply based on minimizing effort to achieve a target utility level: confounding economic policies

Richard Cebula () and Maggie Foley

Journal of Financial Economic Policy, 2022, vol. 14, issue 6, 762-767

Abstract: Purpose - The purpose of this analysis is to explain why labor shortages may have appeared during this pandemic. Interestingly, in this COVID-19 pandemic period, the labor supply shortage could very well become more easily explained than under the traditional portrayal of consumer economic behavior. The matter seemingly lends itself to provocative empirical inquiry. Design/methodology/approach - From this model, it can be shown that the consumer’s labor supply curve is negatively sloped and, indeed, could even assume the form of a rectangular hyperbola. Applying this model in the labor market could explain the labor shortage in the USA during the COVID-19 pandemic. Findings - Arguably, rational consumer behavior can take the form, under a variety of circumstances (including cultural), for consumers/households that have achieved a “comfortable” standing of living/utility level, involve the minimization of work effort to achieve that utility level. In other words, constrained utility maximization is not the only rational form of consumer economic behavior. When the former behavior prevails over the latter, there are myriad implications. These do include an inverse relationship between work effort and wage rate, i.e. a negatively sloped labor supply curve. Originality/value - This paper departs from the conventional treatment of deriving the supply curve of labor based on constrained utility maximization. Instead, it acknowledges that consumers may have a target standard of living and seek to minimize the cost of achieving that given living standard.

Keywords: Minimization of work effort; Utility-level constraint; Downward sloping labor supply curve; C51; J21; J31 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-03-2022-0080

DOI: 10.1108/JFEP-03-2022-0080

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