Labour supply , efficient bargains and countervailing power . Robin

We develop a theoretical model of individual labour supply in which the canonical model of the competitive labour market emerges as a special case. More generally, we are able to characterise labour supply behaviour when, in the absence of a continuum of jobs, firms are able to push workers on to lower indifference curves and off their labour supply curve. We show that in such circumstances wage-hours combinations are likely to be characterised by a contract curve which lies between the worker's labour supply and marginal productivity schedules. Accordingly, workers work more hours than they would choose at given wage rates. Against this, if workers have sufficient countervailing power (deriving from union representation, for example), then a negativelysloped contract curve can extend through wage-hours bundles above the competitive outcome with actual hours being less than preferred hours at given wages. We argue that various predictions of the model are consistent with recent empirical analysis of hours worked of British men (see Stewart and Swaffield (1995, 1997)). We also show that neither minimum wage nor maximum hours regulation each on its own is likely to be of benefit to workers: only when they are combined are they likely to raise the welfare of the low-paid working long hours. JEL Classification No.: J22, J33, J42 Address for correspondence: Department of Economics, University of Warwick, Coventry, CV4 7AL, England, UK. Tel.: 024 76523529. Fax: 024 76523032. E-mail: [email protected]