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Ludwig Von Mises

Today we are going to take a look at one critical element of production; labour. In order to do that, we first need a few definitions.

Definition and characteristics of Labour

Labour is simply the expenditure of energy that a person does in order to produce a good or service. This person may expend energy in many ways such as physical, biological, psychological or through mental abilities. Labour is simply a means to achieve an end. Some people do physical work while others think for a living. What they do does not matter, what matters is that they are all expending energy in the process of producing a good or service. Typically, however, the end that we achieve through labour is separated by time between the moment we labour and the moment we satisfy our need. Labour is a mediate way to satisfy our needs, not an immediate one.

Labour is different from life. Life is the expenditure of energy for purely internal reasons without the goal of producing goods or services external to our bodies.

Labour is different from immediate gratification. Gratification is the process of satisfying needs immediately through the expenditure of energy. For example, we may go to a park to observe birds. Getting there requires that we expend energy but our satisfaction is instantaneous. This is not labour.

Under special circumstances, it is possible to labour and receive immediate gratification. This occurs when we pay for it (i.e. wages are not allowed). For example, when we go to see a movie we must go there (i.e. we must labour to go there) and then we must pay for the movie. In these circumstances our labour delivers immediate gratification. But such circumstances are not common place. Most people labours and much later on they receive the means to satisfy their needs.

People labour for the same reason as people act, to remove uneasiness. We labour to create a good or service because we want to exchange it for money to buy something we want thus decreasing our uneasiness.

Labour needs the expenditure of energy. But energy is not infinite, it is scarce. People can't work like a machine. People gets tired and run out of energy. Thus labour itself is scarce. Therefore we use labour as efficiently as possible. In economic terms this means that we economize labour.

Labour also has psychic or mental costs. The only reason why we labour is because we value more the end we will achieve through labour than the effort involved in labouring.

Definition and characteristics of Leisure

If we want to remove uneasiness, we must act. One way of doing so is through labour. But there is another way. We could be consuming a good or service. When we do so without labouring we call this leisure.

Relationship between Labour and Leisure

We can also say that people labour because they value more the end they will achieve through labour than the leisure they must forego. This is another way to explain the cost of labour.

Leisure can be achieved immediately. All we need to do is to consume a good or service while not labouring. We could eat a sandwich now if we are hungry.

The ends of labouring cannot be achieved immediately. We need to labour first and only then will we obtain our ends. We must work and earn a wage first in order to be able to go to a fancy restaurant to eat an expensive meal.

What this means is that human action is always a balancing act between achieving our immediate goals now or delaying this achievement in order to achieve our long term goals. If I eat this sandwich now I won't be working and therefore I won't be earning sufficient money to go to a restaurant later.

This means that working implies a sacrifice of some sort. People will only sacrifice if they believe that through such effort they will achieve their long term goals. However, if they believe that such goals are not achievable through labour, they will revert to the immediate goals and stop working.

In economic terms we say that if people cannot see any value in the next unit of good or service they will produce through their labour, they will simply stop labouring.

But we know from our lesson in the Scale of Value that humans always prefer to satisfy their most highly valued end first. And we also know from our lesson in Time that humans prefer to satisfy needs now and not later. If we now join both conclusions, we realize that leisure is always the ultimate goal of human action. If we could somehow go to a fancy restaurant now without the need to work, we would do so. If we gather enough money through labour to go to a fancy restaurant now, we would also do so.

Leisure as a consumer good

Although leisure is technically the means to an end, as this end is itself the ultimate goal of any action, it could be considered a consumer good. This way of thinking is purely a convenience, a tool of Praxeology. However, in order to be logically consistent, if we are to treat leisure as a consumer good, it must also obey all the Praxeologial laws that consumer goods obey. In particular it must obey the Law of Diminishing Marginal Utility. This means that the first unit of leisure must satisfy the most pressing need; the second unit the second most pressing need and so on. As we have available more units of leisure, their marginal utility decreases.

For example, if we are tired, our most pressing need for leisure may be sleep. Once this is satisfied, our next most pressing need may be food. Once this is satisfied, our most pressing need may be entertainment (e.g. watch TV). And so on. The value of each unit or "action" of leisure is identical to the need it is intended to satisfy. In this sense leisure does comply with the Law of Diminishing Marginal Utility.

Disutility

It is obvious that leisure implies enjoyment while work implies some sort of sacrifice. For leisure it is easy to understand how the Law of Diminishing Marginal Returns works as we have shown above. However, for labour this is more difficult to do because labouring implies sacrificing leisure today for a more desirable goal tomorrow. It is true that the objective of our labour is to satisfy our most pressing needs first, our second most pressing second and so on. But sometimes this is difficult to grasp because the satisfaction of our needs as a consequence of labour is separated by time. The effects of leisure are immediate while the effects of labour are not.

Consequently, we can think of labour as fulfilling a law opposite to the Law of Diminishing Marginal Returns. When we work, the work itself does not produce utility to us because we sacrifice. Only the ends achieved through our labour have utility. As such we can say that labour fulfills the Law of Increasing Marginal Disutility which has been logically deduced.

Think of it this way. We labour in fixed units. The first unit will satisfy our more pressing need. Because of this, the sacrifice we do while we labour is, in our view, fully justified. The second unit of labour we expend will satisfy our second pressing need, which has lower utility than the first one. Yet, we still have to expend the same amount of work to achieve it. This means that this second unit of work will produce lower utility or higher disutility because we feel that we need to sacrifice equally for a lesser good or service.

What this means is that for each subsequent unit of work that we expend, we value the utility of the end less and less. This means that we perceive that we sacrifice more for less leisure.

Let's say that by working 6 hours we can buy a sandwich. As we are hungry, this is our most pressing need. The next 6 hours will allow us to buy candy, which is our second most pressing need. The next 6 hours will allow us to save some money for future food, which is our third most pressing need and so forth. For every following 6 hours shift, we are less happy with our work because more needs have already been satisfied. We feel "dissatisfaction" for every new shift and this "dissatisfaction" grows with every new shift. Dissatisfaction is simply a synonym for disutility. The more we work, the more disutility we perceive in our work.

It is because the disutility of work increases with each new unit of work, that a person is constantly evaluating labour disutility versus the utility of the ends achieved through labour. When the disutility is greater than the utility, a person stops working.

The exact relationship between labour, utility and disutility cannot be forecasted by Praxeological means. This is so, again, because these parameters are personal and subjective. But what Praxeology can explain based on this insight is why economic and technological progress necessarily implies shorter working hours. We work to satisfy our more pressing needs but as productivity grows, we need less labour to satisfy them. Therefore our labour will be geared at satisfying lesser needs and therefore we will have the tendency to prefer leisure over labour. This preference implies more leisure hours which means less working hours.

Note: please see the Glossary if you are unfamiliar with certain words.

 

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