Flashcards
Labour Supply
Cards in this deck (25)
- 1Give 4 basic statistics regarding labour supplySince 1970
- participation: men > women
- large increase in female participation
- decline in male participation
- average weekly hrs dramatically declined - 2What 3 assumptions are made about labour supply?1. Free choice over hrs worked
2. Constant wage rate
3. Workers have non-wage income - 3How are worker's preferences defined? What are the properties?U = F(L, C)
- Slope = MRS_L, C
- Decreasing marginal utility
- Diminishing MRS implies indifference curves are convex to the origin
- MRS depends on value placed on C and L - 4Give the worker's budget constraintC = wH + V
h = T -L
C = w(T - L) + V
C = wT + V - wL - 5How do HHs optimise?Tangency of budget constraint and indifference curve found by superimposition
Point where MRS_L, C = slope of the budget constraint
MRS_L, C = Ul/Uc = w - 6What is the endowment point?The point where an induvidual has T hours of leisure and can consume £V of goods
- 7How do higher wages effect the budget constraint? When is utility maximised?Higher wages = steeper constraint
Utility is maximised when workers supply positive hours of work - 8What occurs when the endowment point provides more utility than the wage?w < E
Induvidual is out of work and living off non-labour income V - 9what is the reservation wage?The wage rate in which a worker is indifferent between working and not working
- 10What is the effect of an increase in non-labour income on labour supply?Budget constraint shifts upwards
Utility increases
Hours worked decreases if leisure is a normal good (plausible) - 11What is the effect of an increase in wage income on labour supply?Budget constraint becomes steeper
ie: increasing wage increases income which increases leisure so hours falls
se: increasing wage increases the 'price' of L in terms of w so substitute away from leisure causing hours to rise
Depends on induvidual preferences - 12What is the standard form regression normally used in empirical evidence?hi = α + βwi + λVi + ...
- 13What type of good is leisure assumed to be?normal
- 14What is the sign on the estimated coefficient of non-labour income?negative if leisure is a normal good
- 15What is meant by the elasticity of labour supply?The percentage change in hours worked for a 1% increase in wage rate
- 16How is elasticity of labour supply calculated?
- 17What does it mean if |σ| < 1?inelastic labour supply
hours increase by less than one-for-one
downward sloping labour supply curve
ie > se - 18What does it mean if |σ| > 1?elastic labour supply
hours increase by more than one-for-one
upwards sloping labour supply curve
se > ie - 19List 4 challenges of empirical evidenceWhat time span should be used? - elasticity varies
No data for people who are not working - typically people who face very low wage rates or have high reservation wages (selection bias)
Measurement error, averages vs marginal wage rate
V may be dependent on past earnings - 20Summarise a paper on labour supply. What was found?Ashenfelter et al. (2010)
Taxis in NYC
miles proxy for hrs worked if speed consistent
revenue per mile increased after a fare change
Results: miles driven decreased after fare change
ie > se - 21Briefly describe an application of labour supply theoryIn-work benefits wlefare, relief without disincentives
receipt of benefit contingent on work
Results: pushes budget constraint out at certain levels of C, increases utility at those points - 22What does the labour supply curve depict?the relationship between wage rate and hours worked
- 23How is an induvidual's labour supply curve derived?derived from plotting utility maximising points for many wage rates
- 24What is the shape of an induvidual's labour supply curve?backwards bending
se > ie for lower wage rates = more hours worked when wage increases
ie > se for higher wage rates = less hours worked when wage rate increases - 25How is the aggregate labour supply curve obtained?Obtained by summing up the hours induviduals are willing to work at a given wage
Put simply labour supply curves are added horizontally
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- Year 2 ECN21005 - Labour Economics Flashcards on Labour Supply, created by Imogen Donoghue on 18/01/2023.
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- Imogen Donoghue
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