Topic 2: Labour Supply Flashcards
What are the assumptions in the neoclassical model of labour supply?
- Individuals are utility maximising.
- Competitive labour market with exogenous wage.
- Time is used for either work or leisure.
- Labour decisions are independent.
- There is only one period for the purpose of planning.
- No uncertainty.
Present the static model of labour supply.
- Quasi-Concave U function U(C , L, X) - X is personal attributes.
- Constraint is: C + WL = Y + WT
- Income, M = Y + WT
- First order condition UC = λ, UL = λW
Show in the static labour model the results of a wage increase, broken down into substitution and income effects.
What is the extensive and intensive margin.
- The decision to work is called the extensive margin.
- How many hours to work is called the intensive margin.
Show a graph demonstrating the reservation wage.
How is the aggregate supply curve calculated?
You show the employment level at every wage rate.
i.e. Add up the hours of employment across different works at given rates…
Horizontally.
What is the slutsky derivation of wage elasticity.
Note that the second term is the income effect.
The first term is the substitution effect is always positive.
What could have caused the rise in the womens labour force participation over the past few decades?
- Increase in real wage.
- Lower fertility v.s. lower reservation wage (bicausality).
- Technological improvement in home production.
- Other cultural / social factors.
Show the equation for the family labour supply model.
What does the empirical evidence show for the family labour supply model?
- Can be estimated through regressions.
- In the US, a 10% increase in husbands wage lowers the participation rate of women by 5.3% and reduces working wifes work hours by 1.7%
- Little evidence for an effect of the wife’s wage on the husbands labour supply.
