In macroeconomics, indivisibility of labor is the idea that

labor Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the la ...

cannot be used in continuous units but must be purchased from workers in blocks of time, such as eight hours a day or forty hours a week. This model can result in differences in the number of hours worked even though the workers are assumed to be identical: some workers may be unemployed while others are fully employed or even overemployed. The opposite presumption would be that labor may be purchased in continuous units, that workers are identical, and workers'

utility As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...

functions as concave in leisure and income. Under this model, an optimal outcome is for all workers to work some of the time: all workers are at least partially employed and none are unemployed.

Selling

Labor is sold in blocks rather than in continuous units because there are

fixed costs In accounting and economics, 'fixed costs', also known as indirect costs or overhead costs, are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be recurring, such as interest or r ...

to the employer attributable to each employee and fixed costs to the employee attributable to each employer. The concept of labor as indivisible has been introduced by

Richard Rogerson Richard Donald Rogerson is an American economist who is currently the Charles and Marie Robertson Professor of Public and International Affairs at Princeton University, where he is also the Director of the Louis A. Simpson Center for the Study of ...

and

Gary Hansen Gary Duane Hansen (born c. 1958) is an American macroeconomist at UCLA. He is known for creating the theory of indivisible labor, as part of this doctoral thesis at the University of Minnesota. Hansen graduated from the University of Puget Soun ...

, the latter of who describes wages as "lumpy" in an attempt to supplement

real business cycle Real business-cycle theory (RBC theory) is a class of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real (in contrast to nominal) shocks. Unlike other leading theories of the business cycle, RBC t ...

theory. Because

cost In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in whic ...

s occur in lumps, there is

unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work during the refere ...

. It has since then been used in variety of economic theories, especially in real business cycle theory.

References

Labour economics {{labor-econ-stub