Kaushik Basu

Outline of a New Theory of Labor, with Mutating Goods

Abstract:  The standard model of microeconomics treats labor as an unwanted, time-consuming activity that one would not indulge in but for the income that this generates. We have generally presumed that the demand for this kind of labor will exist as long as we do. However, in the age of Artificial Intelligence, with rapidly advancing technology, the question is beginning to arise about what will happen when the demand for this kind of labor vanishes. This paper argues that the time has come to rethink the meaning and foundations of ‘labor’ and goes on to sketch a microeconomic model in which the status of the same time-consuming activity can mutate between ‘labor’ and consumption. A partial equilibrium model is built to illustrate how these mutations can occur because of exogenous changes. Thereafter, a simple, general-equilibrium model with mutating goods is described. This can provide a framework for future research. The model is then used to discuss new kinds of policy interventions that a government may want to design and implement in the new world of vanishing conventional labor.