Question

Economic laws have been true throughout human history. As an example, consider the following passage, from Professor Samaddar’s lectures on the economy of Ancient India:

“Weaving in India has been encouraged from time immemorial... As is the case now-a-days, labourers working overtime were given extra payment... and special rewards were given for working on holidays.” (p.117)

Using a supply and demand diagram in the market for labour, clearly explain why Indian workers working overtime or during holidays were paid extra

Answer 1

Let us consider the above to be the initial stage of labour market. w₁ is the equilirium wage rate and L₁ id the labour employed at the equilibrium.

Now, during overtime or during holidays, the number of labour worce wiilling to work will reduce, as not everyone would want to work overtime or during holidays. However, the demand is still likely to remaint the same. This is reflected by a leftward shift in the supply of labour curve. The leftward shift implies that less amount of labour force is now willing to work at the same wage rate.

As we can see from the above curves, the supply of labour curve shifts leftward during overtime and holidays. As a result, the new equilobrium of the labour market rests at a wage rate ( w₂ ) and labour employed ( L₂ ). We can see that the wage rate ( w₂ ) is higher than the earlier wage rate ( w₁ ). This shows that the workers will have to be paid more during over time and holidays, since the labour supply decreases during those times, pushing up the wage rates.