Jon M at Sociological Speculation reports

…new drugs such as Modafinil appear to vastly reduce the need for sleep without significant side effects (at least so far). Based on reports from users, it seems that people could realistically cut their sleep requirements to as few as 2.5 hours a night without a decrease in mental acuity. 

He notes that people would probably work more, and wonders whether…
…these pills would amount to an increase in the labour supply and cause a fall in hourly wages or unemployment.

Normal microeconomics makes the right answer obvious: A rise in supply pushes down the price of work, so wages will fall.  But normal microeconomics only takes you so far: to get at dynamics and interdependence you need some kind of macroeconomics, a tool for seeing the big picture. 

So here’s what probably happens when drugs make it easier to work more hours: All those extra work hours make capital more valuable, since your assembly line, your delivery truck, your call center can now all produce more output per machine.  

What happens when something gets more valuable?  People try to accumulate more of it.  And what happens when the economy accumulates more capital?  All those extra machines probably make workers more productive, boosting labor demand and therefore raising wages.

So sleep reduction drugs like Modafinil push down wages in the short run, but that increases the demand for capital which pushes wages back up in long run.  If the economy is straighforwardly scalable–if doubling the machines and work hours exactly doubles output–then the sleep reduction drug will have exactly zero effect on long run hourly wages.  

And you don’t even need incentives, optimization, choice, all of that to get this clean result: The original Solow Growth model showed that even if people just consume a fixed fraction of their wages, and don’t raise their savings rate at all when the productivity of capital rises, you’ll still get the clean result that extra work hours have zero effect on long run hourly wages.

The end of sleep is unlikely to push down wages. 

Coda: You’ll notice that a big rise in work hours caused by Modafinil is economically just the same as a big rise in immigrants.  Immigrants put in the work hours that push down wages that build the capital that raises wages.