THE BROTH AND THE COOKS - A THEORY OF SURPLUS LABOR

It had been suggested by Sen (1966) that surplus labor may exist if a decline in labor-force size results in an increase in the number of hours of work per remaining laborer. The present paper explores a new avenue where the decline in the labor force raises wages and thereby raises each worker's productivity. It is argued that the large literature on efficiency wages, while very successful in explaining open unemployment, fails to explain surplus labor. In with the assumption that this is true not only at the aggregate level but at the level of each employer. Once these two assumptions are separated out, a rigorous explanation of surplus labor becomes possible under conditions which are, in some ways, more general than Sen's model. This argument is demonstrated and then some policy issues are addressed in this paper. In particular, the consequences of food rationing and wage subsidies are examined.