Definition of Nondivisibility of Labor

Definition: If one models labor as contractible in continuous units, workers as identical, and workers' utility functions as concave in leisure and income, an optimal outcome is often for all workers to work some fraction of the time. Then none are unemployed. We do not observe this.

If instead one presumes that labor cannot be effectively contracted in continuous units but must be purchased in blocks (e.g. of eight hours per day, or forty per week), this aspect can generate unemployed workers in the model while others work long schedules, even if the workers are otherwise identical. Labor may have to be sold in such blocks for several observed reasons: (a) because there are fixed costs to the employer of employing each worker; (b) because there are fixed costs (e.g. transportation; dressing for work) to the employee of each job. This idea of labor as nondivisible has been used in macro models by Gary Hansen (1985) and Richard Rogerson (1988). (Econterms)

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