The Offer-Curve Approach to Labor Market Analysis: From Marshall-Pigou over Robbins and Buchanan into Oblivion?

In the pure theory of foreign trade, offer curves are still a well-known textbook device for analyzing conflicting interests between countries engaged in foreign trade. In his early days Alfred Marshall suggested that this analytical device be used also for industrial disputes between workers' trade unions and employers within a specific country. Marshall's successor as Cambridge professor of political economy, A. C. Pigou, elaborated this suggestion. With express reference to Marshall, and mentioning the assistance of J. M. Keynes, Pigou used the offer-curve approach for analyzing the interaction between workers and employers as negotiators in wage bargains. But the next step along this line of analysis strangely did not occur in “Marshallian” Cambridge but in the rival LSE. Lionel Robbins used the offer-curve approach and criticized Pigou (and, incidentally, Frank Knight as well) for deficiencies in “backbending” labor supply analysis. After a very long silence over this matter in the economic literature, James Buchanan, in 1971, unsuccessfully tried to propagate Lionel Robbins's use of the offer-curve approach for labor supply analysis. He praised its general equilibrium aspects as being superior to conventional approaches. The present contribution traces these episodes and investigates why there is continuing reluctance in labor market analysis to employ an otherwise well-established analytical instrument.