Question

Let us assume that currently, the Zambian Ministry of Transport has a rule that allows commercial truck drivers to drive up a limit of 90 hours per week; after 40 hours per week, drivers’ hourly pay goes up by 50%. A proposed rule would reduce this limit to 60 hours of driving per week. One supporter of the proposal said this: "Almost no drivers are choosing to work 90 hours per week; drivers will welcome the added time away from the job." Suppose that the proposal passes, and a subsequent study shows that after the new limit took effect, the straight-time wages of truck drivers rose, other things equal. Using economic theory, comment on this finding in the context of the quotation above; explain fully.

Answer 1

The increase in truck drivers' straight-time wages after the limit was reduced to 60 hours per week illustrates the backward-bending supply curve of labor and reflects how workers value leisure more as their wages rise, potentially working more within the new limit since the disutility of labor is lessened.

Step-by-step explanation:

Using economic theory, the findings that truck drivers' straight-time wages rose after reducing the maximum allowed hours from 90 to 60 per week can be understood within the context of labor supply elasticity and the backward-bending labor supply curve.

According to this concept, as wages rise beyond a certain point, workers may choose to work fewer hours, valuing their leisure time higher than the additional income from working more hours. With the reduction in driving hours limit, drivers who were unwilling to work up to the 90-hour limit due to the disutility of labor might now be willing to work more hours within the new 60-hour framework, particularly since their wages would increase for hours worked over 40. Thus, this can lead to an increase in the supply of labor up to the new maximum allowed hours.

Additionally, the increased overtime pay beyond 40 hours per week likely acted as an incentive for drivers to increase their working hours up to the 60-hour cap, resulting in the observed rise in straight-time wages. This situation illustrates the backward-bending supply curve of labor, where workers initially supply more labor as wages rise but may subsequently reduce hours worked as wages continue to increase.