Economics for Programmers - Backward Bending Supply Curve of Labor

2012 January 03 03:58 PM

Lets take a look at the backward bending supply curve of labor from a programmer’s perspective. For individuals, this is one of the single most important concepts in microeconomics. It explains why people are willing to work insane hours in the early part of their lives, but relatively little as they grow older. If you ever wondered why Fortune 500 CEOs make so much money, this will explain most of it.

The Algorithm

Here is how I would illustrate the backward bending supply curve of labor with code:

//starting conditions
time = START_OF_ADULT_LIFE
net_worth = BROKE
productivity = INCOMPETENT

//the days of our lives
while(time++ < LIFE_SPAN)
	income = CurrentMarketPriceForLabor(productivity)
	if(MarginalUtility(income) > MarginalUtility(personal_time))
		DoWork()
		net_worth += income
		productivity += AdjustProducitivityForIncreasingSkill()
	else if(OfferedAboveMarketIncome()) 
		if(MarginalUtility(above_market_income) >
			MarginalUtility(personal_time))
			DoWork()
			net_worth += income
			productivity +=
				AdjustProductivityForIncreasingSkill()
	else
		net_worth -= DoPersonalTime()

//rational thoughts
MarginalUtility(income) =
	Utility(net_worth + income) - Utility(net_worth)
MarginalUtility(personal_time)
	Utility(net_worth + DollarValue(personal_time)) -
	Utility(net_worth)
DollarValue(personal_time) =
	//this should probably be further adjusted to value personal
	//time over work as time approaches LIFE_SPAN
	net_worth / DESIRED_NET_WORTH * MAXIMUM_PERSONAL_TIME_VALUE

What it means

Notes

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