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Labor Supply

Labor Supply. The Work Leisure Choice. I 1. X=10H. X. I o. X*. H*. The Work Leisure Choice. I 1. X=10H. X. 1680. I o. X*. 168. H*. The Work Leisure Choice. I 1. X=10H. I o. X. 1680. I o. X*. 168. H*. The Work Leisure Choice. I 1. X=10H. I o. X. 1680. I o. X*. L*.

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Labor Supply

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  1. Labor Supply Lectures in Microeconomics-Charles W. Upton

  2. The Work Leisure Choice I1 X=10H X Io X* Labor Supply H*

  3. The Work Leisure Choice I1 X=10H X 1680 Io X* Labor Supply 168 H*

  4. The Work Leisure Choice I1 X=10H Io X 1680 Io X* Labor Supply 168 H*

  5. The Work Leisure Choice I1 X=10H Io X 1680 Io X* Labor Supply L* 168 H*

  6. The Work Leisure Choice I1 X=10H L*+H*=168 Io X 1680 Io X* Labor Supply L* 168 H*

  7. The Backward Bending Labor Supply Curve w S Labor Supply H

  8. The Backward Bending Labor Supply Curve w • As wages initially rise, people work harder S Labor Supply H

  9. The Backward Bending Labor Supply Curve w • At some point, people are making enough money and decide to work less. S Labor Supply H

  10. Hours worked over time Labor Supply

  11. Hours worked over time Labor Supply

  12. Hours worked over time Labor Supply

  13. An Interpretation • This is the long run labor supply curve. Labor Supply

  14. An Interpretation • This is the long run labor supply curve. • Normally, if an hour of leisure costs you more, you will purchase less of it Labor Supply

  15. An Interpretation • This is the long run labor supply curve. • Normally, if an hour of leisure costs you more, you will purchase less of it • However, as your wage rate rises, your income rises and you want more leisure. Labor Supply

  16. An Interpretation • Suppose your employer offered you an additional $10 an hour for every hour you worked this week and only this week. Labor Supply

  17. An Interpretation • Suppose your employer offered you an additional $10 an hour for every hour you worked this week and only this week. • You might decide to work 10 extra hours Labor Supply

  18. An Interpretation • Suppose your employer offered you an additional $10 an hour for every hour you worked this week and only this week. • You might decide to work 10 extra hours • There is a substitution effect. • The effect on your lifetime income is negligible Labor Supply

  19. An Interpretation • Now suppose you got a permanent pay raise of $10 an hour. Labor Supply

  20. An Interpretation • Now suppose you got a permanent pay raise of $10 an hour. • Most people would choose to work less over their lifetime. Labor Supply

  21. An Interpretation • Now suppose you got a permanent pay raise of $10 an hour. • Most people would choose to work less over their lifetime. • They might not reduce the amount they work right now, but might retire earlier. Labor Supply

  22. Long Run and Short Run Labor Supply Curves w SSR SLR H Labor Supply

  23. Long Run and Short Run Labor Supply Curves The Long Run LS Curve shows how people respond to a permanent change in the wage rate. w SSR SLR H Labor Supply

  24. Long Run and Short Run Labor Supply Curves The Short Run LS Curve shows how people respond to a temporary change in the wage rate. w SSR SLR H Labor Supply

  25. Some Examples • College students work fewer hours than they would if this were their “permanent wage”. Labor Supply

  26. Some Examples • College students work fewer hours than they would if this were their “permanent wage”. • People who temporarily fall on hard times don’t work many hours at the low wages they can earn on a temporary job. Labor Supply

  27. Some Examples • College students work fewer hours than they would if this were their “permanent wage”. • People who temporarily fall on hard times don’t work many hours at the low wages they can earn on a temporary job. • We all work hard when a lucrative opportunity comes along. Labor Supply

  28. Some Caveats • The notion of a single week as a basis for labor supply is limiting Labor Supply

  29. Some Caveats • The notion of a single week as a basis for labor supply is limiting. • Workers have traditionally varied their hours of work over the course of the year. To adjust for the Christmas effect or the Finals week effect, we interpret this as an “average” week. Labor Supply

  30. Some Caveats • The notion of a single week as a basis for labor supply is limiting. • People “bunch” their labor supply at times when wage rates are higher when business is booming. Labor Supply

  31. Some Caveats • The notion of a single week as a basis for labor supply is limiting. • People “bunch” their labor supply at times when wage rates are higher when business is booming. Teachers work harder during September - May Labor Supply

  32. Some Caveats • The notion of a single week as a basis for labor supply is limiting. • People “bunch” their labor supply at times when wage rates are higher when business is booming. We all tend to work harder during the middle of our life span, for that is when the combination of abilities and physical stamina is at its peak Teachers work harder during September - May Labor Supply

  33. End ©2006 Charles W. Upton Labor Supply

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