Milk and Cookies Economics: What do Wall Street Investment Bankers and MoHos Have in Common?

What do Wall Street Investment Bankers and MoHos Have in Common?

By: Jenni, Yuzhi, Marilyn, Edmee

We know you’re dying to know what the catchy, oh-so-clever answer to this blog post is… However! You’ll have to invest a little more time (i.e. spend more time reading this article) if you want to find out the answer. So, let’s begin:

The supply curve for labor as shown in Figure 1 below is backward bending. Let’s take a minute to make sense of the graph. For rational laborers, to a certain point, as wage goes up labor increases as well because as if you are being paid more to do your job (wage increase), then you will want to work more… To a certain point. After a certain point (it varies for each person), the worker won’t want to “supply” more labor (i.e. work more & earn more money), they will want to work less, thus causing the supply curve to have a negative slope at that certain point. When you work less, you also “consume” more leisure such as hanging out with friends (i.e. complaining about your life to your friends), watching Game of Thrones (Season 4 is starting in April!), going on a vacation (or a staycation if you don’t want to spend money), or going to Amherst for some boba tea (passion fruit green tea with lychee jelly is must-try, FYI) . Let’s return our thoughts to the labor supply curve. So, as a rational laborer, if your hourly wage was raised from $20 to $40, you might spend more time at the office working. Originally, at $20/hour, you worked 8 hours/day (you earn $160/work day); at $40/hour, you still work 8 hours/day (you earn $320/work day). If your wage was then raised to $80/hour, you might work be going home earlier because you wouldn’t need to work as much to earn $320. If you made $80/hour, you would only need to work for 4 hours each day to make $320. You could spend those extra 4 hours drinking boba tea or watching Game Thrones (or sleeping…). See the figure below. After you are earn a certain wage, you would stop “consuming” work and starting consuming more leisure.

Now, let’s answer our original question: What do Wall Street investment bankers and MoHos have in common? The answer is (drum roll, please): Wall Street bankers and Mohos both defy the law of the backward bending supply curve for labor. Why? Let’s look at Wall Street investment bankers first. Joe Amherst is an investment banker at JP Morgan. In his first year, he earns $800,000 plus a bonus of $200,000 working 6 days per week (8 hours each day). The next year, he earns $2 million plus a $500,000 bonus working 6.5 days per week (8 hours each day). Still, Joe is not happy because he is a true capitalist and wants as much money as possible. So, in his the third year, Joe earns $3 million plus a bonus of $1 million dollars working 7 days a week (8 hours each day). The fourth year, Joe is earning so much money we don’t even want to tell you the amount. However, in his fourth year, Joe brings work home with him and is working more than 12 hours each day. As we can see, though Joe Amherst’s income, or “wage”, has steadily increased each year, his “supply of labor” has not. There is no amount of money that will get Joe to produce less labor (i.e. work less) and consume more leisure (i.e. relax). Like many others, Joe is addicted to money and as a consequence, he is addicted to working. Therefore, his supply curve of labor is not backward bending, rather, it has a positive slope trending upwards. Joe’s supply curve never reaches a point where it bends backwards. Of course, not all Wall Street investment bankers are like Joe.

What about Mount Holyoke students? Well, like Joe Amherst, Jane Moholyoke is a hard working individual who wants to succeed in whatever she takes on. Currently, Jane is a student at Mount Holyoke.Jane chose Mount Holyoke for its well-known strong work ethic and incomparable dedication to academic excellence. At Mount Holyoke, or any other education system for that matter, Jane’s grades are equivalent to her wage. Jane is now a senior. Freshmen year, Jane had a 3.0 GPA. She was unsatisfied with this, so she dedicated more time to her studies and cut down on her “Game of Thrones” watching habits. Sophomore year, Jane earned a 3.4 GPA. Go Jane! Junior year, Jane decided if she cut out boba-drinking and “Game of Thrones”, she could do better. And she did! At the end of her junior year, Jane’s GPA was 3.7. Still, Jane wanted to do better. So senior year, Jane not only cut out boba-drinking and “Games of Thrones”, she also broke up with her boyfriend and stopped talking to all her friends explaining she needed to focus more on her studies. At the end of senior year, Jane’s GPA was a whopping 3.8. However, Jane was unhappy by the end because she realized how much fun she had missed out on. Like Joe Amherst, Jane Moholyoke’s supply of labor kept increasing no matter how high her “wage” (i.e. GPA) was. So, like Joe, Jane’s supply curve of labor is upward sloping for the most part. However, there is a slight difference in Jane’s curve. Jane’s supply curve does backward bend at a certain point. The only time it may start bending backwards is when she reaches the upper limit of a 4.0 GPA. A 4.0 is the highest GPA you can earn (in other words, the highest “income” a student can earn), therefore, after a 4.0 GPA, you would spend less time working since you would get nothing out of working harder.