Industrialisation and surplus labour: A general equilibrium model of sleep, work and leisure

We present a general equilibrium model in which agents allocate their time to sleep, work, eating or a variety of “leisure ” activities. We assume that the manufacturing sector which produces the leisure commodities is characterised by increasing returns to scale and monopolistic competition. We show that under certain conditions the economy can be characterised by multiple equilibria. One equilibrium is a high leisure, high work, low sleep equilibrium (the “developed country ” equilibrium) while the other is a low leisure, low work, high sleep equilibrium (the “peasant economy ” equilibrium). The low development equilibrium is characterised by “surplus labour ” in the sense that the same agricultural output can be produced in the high equilibrium with fewer workers. The reason is that the supply of additional varieties of leisure commodities elicits increased work effort by everyone. The low development trap is similar to that in the Murphy, Shleifer and Vishny “big push ” model, except that the externalities work through the consumption side. We consider whether state intervention might be able to move society from the “peasant ” economy state to the industrialised one. This requires more than simple coordination of investment (the “big push”), since there is deficient supply of industrial workers. A “poll tax ” of the sort imposed by British colonial governments can be effective in supporting the emergence of an industrialised sector. It is, however, likely to lead to a dualistic and distorted economy in which the agricultural population is exploited at the expense of the urban sector. JEL codes: J2 O1