In many jobs, skills built up through years of experience change the way workers come to regard their working hours and remuneration.
If it takes one hour for an experienced worker to complete a task for A$100, they will have a different view of their work than a younger colleague who takes four hours to do the same thing for the same amount.
Eventually, the inexperienced colleague may be able to do in one hour what previously took four hours and the time they spent in accumulating the skill will deliver a financial payoff. The extra time spent now is an investment in the future.
This idea of 'returns to experience' changes how we think about the concept of labour supply elasticity which is at the core of labour economics.
Labour supply elasticity measures how varying wages influence the available labour force.
For A$10 an hour, for example, there will be a certain number of people prepared to do a job, but the candidate pool is likely to be significantly higher if the pay is doubled to A$20 an hour.
The real-life labour situation often has elements of both of these concepts, balancing elasticity and experience depending on the difficulty of the job, the level of skill and experience required, and of course the remuneration.
LEVEL PLAYING FIELD
To explore these ideas further, lecturers Tess Stafford and Scott French from the school of economics at UNSW Business School, conducted an innovative study of lobster fisherman in Florida, contrasting the work patterns of highly experienced, near-retirement fishermen with their younger and less experienced colleagues.
The two researchers accessed 22 years of data from the Florida Fish and Wildlife Conservation Commission, which included all sales records for commercial fishermen and the hours they spent at sea in the years between 1986 and 2007.
From this, they analysed the work patterns of 639 individual fishermen.
The Florida waters have some valuable characteristics as a context for research. In many ways they are a level playing field where fisherman make their own choices and the main differentiator is skill, largely developed through learning and experience.
All workers in the industry fish for a commodity that has the same spot price, set on a daily basis prior to leaving the dock.
Fishermen choose when to begin fishing and when to quit, and are in full control of how many days they go out and when they start and end their operations each season.
"These are highly autonomous workers who use their own boats and choose their own working hours," says French.
"We observe a significant difference in the way they go about things. For younger workers, we see them working a lot to gain experience and older people not working that much, and choosing to work at times when it is most profitable to do so."
French says that because the older workers in the study were very close to retirement, working to gain experience was no longer a factor for them.
Being more experienced, they were more selective of the hours they worked and would be more likely to choose times in the lunar cycle when their chances of success in catching lobsters were greater.
Because the 'returns to experience' factor is negligible, French says that these workers are ideal examples to understand the idea of inter-temporal elasticity of substitution (IES) of the labour supply, which looks at the relationship between hours worked in response to differences in returns.
DESIRE TO LEARN
The IES is a slightly different metric than elasticity. It is a measure of a worker's preference around working hours, and is often used in macroeconomic modelling on the impact of fiscal policies during periods of recession.
While the idea of IES was predominant in the choices made by older fishermen, younger workers exhibited what is called 'learning by doing' or LBD, which introduced another factor and a bias into the equation beyond the idea of IES.
These workers are motivated not simply by the remuneration because their working patterns are also driven by a desire to learn.
With time, these younger fishermen gain a better understanding of the patterns of lobster behaviour, their locations and migrations during the lunar cycle and in times of rough weather, when catch rates are typically higher.
The analysis shows significantly higher average hourly earnings for the sample of retiring fisherman.
The mean figure for average hourly earnings for this group was US$146.15 (S$199.20) based on all days of fishing, against a mean of US$91.90 for the sample of 'entering' or inexperienced fishermen. For the entire sample of 639, the mean was US$125.92.
In the week of the new moon, when lobsters are more easily caught, the mean for the retiring sample was US$176.33, while for the entering sample it was US$108.35.
The results also show that the group of retiring fisherman have higher levels of elasticity, meaning they are more purely responsive to the best and most profitable conditions for lobster fishing.
The younger group showed much lower levels of elasticity because profitability is not their only driving factor and they are also motivated to learn by doing.
Although a long established profession, the fisherman share many characteristics with Uber drivers, workers who are in the vanguard of the so-called gig economy.
Like Uber drivers, they are highly autonomous and are competing with each other for the same thing at the same rate of pay. Where fisherman look for lobsters, Uber drivers look for passengers.
NON-TYPICAL WAGE PROFILES
In Sydney's inner west, Uber driver Christos says he makes strategic choices on the times he drives, and has built up a store of useful knowledge the times of busiest demand, and where he should position himself to win business.
"I know when is good for the Sydney Fish Market, and when people are wanting to leave the Star Casino," he says.
Christos says there is a big difference between experienced Uber drivers and those who are new to the job.
"It took me a while to crack it, I must admit," he says. "It wasn't that lucrative to start with but I got better and had to learn fast."
Professions such as lobster fishing, and even Uber driving, says French, are ones that show a clear return to experience.
This contrasts with other jobs in the gig economy, such as pizza delivery drivers, where workers are less able to work autonomously, returns to experience are lower, and there is a higher elasticity of labour supply based on pay, such as when pay rates are higher due to holiday penalties.
"I think what our study shows is that workers are quite responsive to a range of factors," says French.
"We see young people working a lot to gain experience and older people not working much more at higher wages because their incentive to gain experience has declined over time."
Conventional wisdom has held that workers prefer to work a steady number of hours in regular jobs, but it would seem that the increasing number of people who have 'non-typical wage profiles' enjoy their autonomy.
Ultimately, the research shows that no matter what their employment or life stage, people make rational decisions about their work based on incentives, but that wage levels are just one of a number of incentives.
In a world of more flexible work, it is a positive sign that the system may be working.
This article was published on Perspectives@SMU on June 29, 2018 with permission from BusinessThink at UNSW Business School.