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4.3. Elasticities of supply

4.3. Elasticities of supply. Same idea as before, but now on the supply side The elasticity of the supply of labor: ES L = ∆%L / ∆%W > 0 but also… All over the curve E could be = 0 (perfectly inelastic), = ∞ (perfectly elastic), < 1, > 1, < 0

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4.3. Elasticities of supply

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  1. 4.3. Elasticities of supply • Same idea as before, but now on the supply side • The elasticity of the supply of labor: • ESL = ∆%L / ∆%W > 0 but also… • All over the curve E could be = 0 (perfectly inelastic), = ∞ (perfectly elastic), < 1, > 1, < 0 • Changes over the curve do not imply shifts of the curve • The supply curve will shift, basically, due to : 1) ∆YNL • 2) ∆ map of IC (L-l)

  2. 4.4. Non-participation, reservation wage, etc. • The “non-participation” scenario: • ICs with steep slope (high MRS) • ∆YNL • BC “very flat” (low wages  slope) • As before  Max. U; but out of LF (all t goes to leisure)  for all the graphic, slope of ICs are steeper than BC’s (i values leisure more) • Reservation wage: highest wage at which i chooses NOT to work (or lowest wage at which i decides to work)

  3. 4.4. Non-participation, reservation wage, etc. • Summing up: • Those i allocating higher U to education & training, child care, etc.  more prone to be outside of the LF • The same for those receiving YNL (from parents, spouse, social services, pensions, etc.) • The higher the opportunity cost of remaining idle (higher w), the more probable that the i will be in the LF

  4. 4.5. Becker’s model • Extension of basic model where i used t only for L-l • The model adds two new features: • Perspective of family  more informative • Multiples uses of t  L, Lh, l • The FU produces “commodities” which yield U, combining goods and services with t • t then is used for: 1) L that generates $ to buy goods and services, 2) in “family production” and 3) consumption • Commodities will be time-intensive or good-intensive, and they will be substitutes

  5. 4.5. Becker’s model • What do families decide? • What commodities to consume? • How? • How will the FU distributet among its members (L, Lh & l)? • Point 3 can be thought out in terms or comparative advantages that come with age, sex, education, experience, natural skills, etc. • Albeit a bit different, here we also have income & substitution effects: • Substitution effect: ∆L due to ∆w with Y  > 0 • Income effect: ∆L due to ∆Y with w  < 0

  6. 4.6. Cyclical changes in the workforce • Introduction: • Why has the PR(M) fallen during the XX century? • Higher incomes and wages • Social security and private pensions • Social security  “very generous” and progressive • Life cycle • Why has the PR(F) increased? • Higher w rates • Change in preferences • Higher productivity of families • Drop in birth rates • More divorces • Improved access to job opportunities (e.g. part-time) • To maintain a high standard of living

  7. 4.6. Cyclical changes in the workforce • Cyclical changes: • Ex. a member of the FU loses his job  the net effect on the PR will depend on two effects: • Additional worker effect: other members will seek jobs to compensate for the loss (income effect) • Discouraged worker effect: unemployed workers become pessimistic  stigmatization (substitution effect) • Effects with opposing forces  empirically the substitution effect is stronger  PR & unemployment move in opposite direction

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