Opportunity Cost of Leisure Time
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Opportunity Cost of Leisure Time
The opportunity cost of leisure time entails the amount of income that a laborer sacrifices while using their leisure time. Leisure time involves any non-market activity that a laborer chooses to do while not working in order to receive more income. Leisure time can involve any activity, such as reading, watching television, or exercising. It is common sense to assume that if wages go up, then the substitution effect will dominate and most people will be willing to sacrifice leisure time for labor hours. However, in wealthier countries it is apparent that the income effect dominates, in that people with initially higher incomes place less importance on the opportunity cost of their time and they are willing to sacrifice the chance to make a higher income in order to do what they would like.
Example of leisure time: If the opportunity costs of leisure increase, then women will be less likely to give birth to a baby. The time that is spent on raising a child is valuable time that women could be using in order to receive more of an income. In this case if wages are high, the opportunity cost of leisure time outweighs the actual time spent on leisure and this accounts for the decrease that can be seen in birthrate in wealthier nations.
Sleep is another example of leisure time. Many people think that sleep is a necessity and can be looked at as a valuable commodity that workers are unwilling to sacrifice. In fact, studies done by Jeff Biddle and Daniel Hamermesh, economists at Michigan State University, show that sleep may not be as much of a necessity as we think it is. A diary was kept for 706 different people between the ages of 23 and 65 to monitor their sleeping habits. 78% of the people slept on average, just under 8 hours. Also, 12 % slept over 9 hours and and 10% slept under 6 ½ hours. When there was an increase in wages to 25% there was a decrease in sleep by 1% and when wages were doubled, sleep time decreased by 20 minutes. This shows that sleep is sacrificed and the substitution effect takes hold. The assumption can also be made from these studies that women require their sleep more than men because on average, they sleep about two minutes more than men. However, Hamermesh explains that this is not the case. In fact women with jobs work about 5 minutes less than men, which proves that substitution effect is stronger in women, although women apparently work closer to their biological limit than men do.
Varying from this prior Austrian theory of opportunity cost, William Stanley Jevon puts forth the theory of "Pain Cost" and its effect on the marginal productivity of labor. The "pain cost" has to do with working long hours or at high levels of intensity, which prevents the worker/consumer from leisure time. Leisure time in this sense is viewed as a commodity for workers to use consumption. This theory differs from the theory of opportunity cost of leisure time in that workers will sacrifice higher wages for leisure time not because of the income that they could be making, but rather because of the work being too strenuous that it pushes the workers towards exhaustion and therefore, they have less leisure time for consumption. The concept is known as the marginal disutility of labor. The marginal disutility of labor is only positive when the job is exhausting and causes "painful exertion." Jevons, for the most part, feels that the marginal disutility of labor is negative because of the pleasure workers find in their work. When the marginal disutility of labor is positive it is very likely for a worker to cease working in order to provide more leisure time for consumption. Although Jevon's theory makes sense, the economic world determined that the theory of opportunity cost made more sense than pain cost. "For the now universal recognition that even when disutilities are taken into account, they are ultimately to be regarded as being the pull of foregone leisure or foregone present income—opportunity costs rather than disutilities in the sense of the old hedonistic calculus."
Studies of sleep as a commodity of leisure (such as Szalontai's study of African population, for example) show that not getting enough sleep decreases the marginal productivity of labor of the worker. Following the principles of the New Keynesian theory when efficiency decreases, the real wage decreases, too, and eventually labor supplied decreases, too. So, sleeping less will lead you to working less in the long run. If insomnia does not kill you in the short run.
