Advanced embedding details, examples, and help! Introduction -- 2. Labor Supply -- 3. Topics in Labor Supply -- 4. Labor Demand -- 5. Labor Market Equilibrium -- 6. Compensating Wage Differentials -- 7. Human Capital -- 8. The Wage Structure -- 9. Labor Mobility -- Labor Market Discrimination -- Labor Unions -- Labor Market Contracts and Work Incentives -- There are no reviews yet. Be the first one to write a review.
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Blossom Harrell. A short summary of this paper. Download Download PDF. Translate PDF. How many hours will a person allocate to leisure activities if her indifference curves between consumption and goods are concave to the origin?
A worker will either work all available time or will not work at all. As drawn in Figure 1, point B is preferred to points A and C. Thus, the worker chooses not to enter the labor market. As drawn in Figure 2, point C is preferred to both points A and B. Thus, the worker chooses not to consume any leisure and to work all available time.
Thus, an increase in the price of goods lowers the reservation wage and makes the person more likely to work. This shift induces both an income effect and a substitution effect.
This substitution effect is illustrated by the move from point P to point Q in Figure B. This income effect is illustrated by the move from Q to R. As drawn the income effect dominates the substitution effect and the price increase lowers the demand for leisure and increases hours of work.
It is, of course, possible for the substitution effect to dominate the income effect not pictured , so that hours of work decreases. Thus, without further restrictions on preferences, an increase in the price of market goods has an ambiguous effect on hours worked.
Figure B. There are non-sleeping hours in the week. Cindy gains utility from consumption C and leisure L. The most leisure she can consume in any given week is hours. The reservation wage is the MRS when not working at all.
Some people at the firm think this change will lead employees to save more and therefore to be able to afford to retire, while others at the firm believe this will lead employees to have less retirement savings and therefore be less able to afford to retire. Explain why either point of view could be correct. Either point of view may be correct. There are non-sleeping hours in the week available to split between work and leisure.
The reservation wage is defined as the MRS when working no hours. Explain why a lump sum government transfer can entice some workers to stop working and entices no one to start working while the earned income tax credit can entice some people who otherwise would not work to start working and entices no one to stop working. Thus, if leisure is a normal good, a lump sum transfer will likely cause workers to work fewer hours and certainly not cause them to work more hours while possibly enticing some workers to exit the labor force all together.
On the other hand, the Earned Income Tax Credit raises the effective wage of low-income workers by 40 percent at least for the poorest workers. Thus, someone who had not been working faces a wage that is 40 percent higher than it otherwise was.
This increase may be enough to encourage the person to start working. In , 4, TANF recipients were asked how many hours they worked in the previous week. In , 4, of these recipients were again subject to the same TANF rules and were again asked their hours of work during the previous week. Like the other group, they were asked about their hours of work during the previous week. The data from the experiment are contained in the table below.
Develop a standard difference-in-differences table to support your answer. Consider two workers with identical preferences, Phil and Bill. Both workers have the same life cycle wage path in that they face the same wage at every age, and they know what their future wages will be. Leisure and consumption are both normal goods. Because the workers have the same life cycle wage path and the same preferences, they will have the same life cycle path of hours of work up to the unexpected event.
An inheritance provides an income effect for Bill with no substitution effect, and thus, he will work fewer hours or at least not more hours than Phil from the age of 35 forward. In this case, because the inheritance is fully anticipated, and because it offers the same income effect with no substitution effect, Bill will work fewer hours or at least not more hours than Phil over their entire work lives.
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