Backward-bending Labor Supply Research Articles

Backward-bending labor supply and urban location

This study attempts to combine a labor supply model with a housing location model. We focus on the trade-off between hours of work, commute times, and leisure time as well as the trade-off between the consumption of a good, housing space, and leisure time. We show that both labor supply and urban location choice have an inverted U-shaped relationship regarding the wage rate. These results are empirically shown by using Japanese data on the hours of work and commute times by household income class and on the number of households by income class.

The Myth of Backward-Bending Curves: Micro-Events in Macro-Models

Most authors give, in the beginning of their elementary textbook, a warning to readers against confusion between movements on versus shifts of the demand and supply curves. Oddly, later on in the same book they themselves fall in the very trap of such confusion. The so-called Giffen good and backward-bending labor supply should, if ever, be explained as a shift in the relevant curve rather than backward-bending in the market model. Even more oddly, such popular mistakes are caused by forgetting the elementary fact that every scientific model has its own assumptions that are often invalidated in other models. The assumptions for the production possibility frontiers and the indifference curves, which are the mothers of the backward bending curves, are completely different from those in the market model. Therefore, such curves are merely outcomes of fallacy of composition, namely, the mistake of explaining micro-events using macro-models.

On the Behavior of Entrepreneurial Factor Supply to the Firm

This paper draws on an existing, but little used, approach to the choices governing the supply of ‘entrepreneurial’, in the sense of ‘residually remunerated’, resources to an enterprise, especially post start up. It focuses in particular on the hybrid ‘own factor demand/supply curve’ to the firm of Bronfenbrenner (1960), but attempts to treat such supply in conjunction with ‘contractual’ employment of resources, thus making use of gearing and portfolio concepts. To achieve this, it is found necessary for the hybrid schedule to be reinterpreted and recast as the locus of the relevant utility maximising choices. A model is presented which features combining all productive resources in a single factor F so as to concentrate on the choice between the entrepreneurial and contractual employment of these. The model identifies a variety of possible entrepreneurial resource supply responses to product market signals, including the possibility of divergence from the ‘normal’ expectation of a monotonically upward sloping supply curve. Such ‘unexpected’ behaviour is seen as rational and consistent, both with the needs of survival in distress and of safeguarding gains in the upside. Hence it is also efficient on welfare grounds. Analogies with the backward bending labour supply model and with risk/return choices in finance are pursued. The policy implication is that greater use of equity, especially in start ups and distress situations, should be encouraged.

Labor supply functions of working male and female pharmacists: In search of the backward bend

BackgroundPrevious research has shown that U.S. pharmacists experience negative elasticities along a backward-bending labor supply function. The presence of a backward bend in the labor supply curve may cause a decrease in the amount of work at a time of labor shortage. Therefore, the determinants of pharmacists’ labor supply functions should be explored to assess the impact of this backward bend. ObjectivesTo determine whether female and male pharmacist work inputs are influenced by the same factors and estimate where the backward bend occurs, if at all, in their labor supply functions. MethodsData were collected using a survey questionnaire mailed to registered pharmacists in South Florida. Labor supply functions were formulated and tested separately for 558 men and 498 women. The wage rate, other household income, human capital stock, job-related preferences, and opinion variables were hypothesized to explain labor supply differentials. Human capital stock variables included professional experience, holding a specialty board certification, and number of children; job-related preference variables included urban-rural location of work site and main role as a practitioner; and opinion variables included stress, autonomy, fairness in the workplace, flexibility, and job security. ResultsMen and women responded differently to identical stimuli, and their supply functions were influenced in different ways by the explanatory variables. Both genders exhibited positive labor supply elasticities greater than those reported in other studies. Both genders’ backward bend in their labor supply functions occurred several standard deviations to the right of the mean. ConclusionThe backward bend in the labor supply functions of male and female pharmacists is not likely to affect in the near future the labor market’s ability to regulate shortages of practitioners via increases in the wage rate. A more thorough understanding of pharmacists’ labor supply functions must address gender issues and differences in response to identical stimuli.

The Dynamics of Moonlighting in Pakistan

The study explores the dynamics of moonlighting, demographics, human capital and association of occupations between primary and secondary job. The paper is based on cross-section data Labor Force Survey 2006-07 and limited to male wage workers residing in urban areas. Among two motives according to theoretical framework of moonlighting; first, constraint on hours worked in first job and second is wage rate is lower than the reservation wage in the primary occupation; within limited information available on different variables our results are skewed toward first motive. Backward bending labor supply curve in Pakistani labor market is an interesting finding of the study. The model specification also attempts to correct the endogenous regressor in probit estimation. Among moonlighters ‘Professionals’ and ‘Technicians’ are holding their secondary job in same occupational category; apart from these two occupational categories managers and elementary occupations also seems popular for moonlighting.

A public good version of the collective household model: an empirical approach with an application to British household data

In this paper we consider an empirical collective household model of time allocation for two-earner households. The novelty of this paper is that we estimate a version of the collective household model, where the internally produced goods and externally purchased goods are assumed to be public. The empirical results suggest that (1) Preferences of men and women differ; (2) Although there are significant individual variations, on average the utility functions of men and women are equally weighted in the household utility function; (3) Differences in the ratio of the partners’ hourly wages are explanatory for how individual utilities are weighted in the household utility function. (4) The female’s preference for household production is influenced by family size, but this does not hold for the male; (5) Both the male and the female have a backward-bending labor supply curve; (6) Labor-supply curves are forward-bending with respect to the partner’s wage rate; (7) Our model rejects the unitary Slutsky symmetry condition.

A Public Good Version of the Collective Household Model: An Empirical Approach with an Application to British Household Data

In this paper we consider an empirical collective household model of time allocation for two-earner households. The novelty of this paper is that we estimate a version of the collective household model, where the internally produced goods and the externally purchased goods are assumed to be public. The empirical results suggest that: (1) Preferences of men and women differ; (2) Although there are significant individual variations, on average the utility functions of men and women are equally weighted in the household utility function; (3) Differences in the ratio of the partners' hourly wages are explanatory for how individual utilities are weighted in the household utility function. (4) The female's preference for household production is influenced by family size, but this does not hold for the male; (5) Both the male and the female have a backward-bending labor supply curve; (6) Labor-supply curves are forward-bending with respect to the partner's wage rate; (7) Our model rejects the unitary Slutsky symmetry condition.

A Public Good Version of the Collective Household Model: An Empirical Approach with an Application to British Household Data

In this paper we consider an empirical collective household model of time allocation for two-earner households. The novelty of this paper is that we estimate a version of the collective household model, where the internally produced goods and the externally purchased goods are assumed to be public. The empirical results suggest that: (1) Preferences of men and women differ; (2) Although there are significant individual variations, on average the utility functions of men and women are equally weighted in the household utility function; (3) Differences in the ratio of the partners' hourly wages are explanatory for how individual utilities are weighted in the household utility function. (4) The female's preference for household production is influenced by family size, but this does not hold for the male; (5) Both the male and the female have a backward-bending labor supply curve; (6) Labor-supply curves are forward-bending with respect to the partner's wage rate; (7) Our model rejects the unitary Slutsky symmetry condition.

Empirical Estimation Results of a Collective Household Time Allocation Model

In this paper an empirical model is developed where the collective household model is used as a basic framework to describe the time allocation problem. The collective model views household behavior as the outcome of maximizing a household utility function which is a weighted sum of the utility functions of the male and the female. The empirical research that has been done is mainly focused on testing and refuting the unitary model. Moreover, in the bulk of time allocation literature the main accent still lies on the development of theory. The novelty of this paper is that we empirically estimate the two individual utility functions and the household power weight distribution, which is parameterized per household. The model is estimated on a sub-sample of the British Household Panel Survey, consisting of two-earner households. The empirical results suggest that: (1) Given that the weight distribution is wage dependent, preferences of males and females differ, which rejects the unitary model; (2) the power differences are mainly explained by differences in the ratio of the partners' hourly wages; (3) although there are significant individual variations on average the power distribution in two-earner families is about even; (4) the male tends to be marginally more productive in performing household tasks than the female; (5) the preference for total household production is influenced by family size for the female but not for the male; and (6) both males and females have a backward-bending labor supply curve.

The labor–leisure choice in executive compensation plans: Does too much pay reduce REIT performance?

In this study, an alternative theoretical model for the relationship between pay and performance is developed. Prior research implicitly assumes that increases in compensation will enhance effort and subsequently increase performance via the substitution effect, ignoring the possibility of an income effect. At high levels of pay, there may be a strong income effect, leading to less effort and lower performance, creating a backward bending labor supply function. The empirical evidence provides support for this theoretical construct. The results of this study also illuminate the weak relationship between pay and performance found in prior studies.

A backward-bending labor supply curve without an income effect

This paper proposes an explanation of the backward‐bending labor supply curve that is not based on the premise that the income effect dominates the substitution effect. Unlike the classical labor supply theory that treats working hours and work effort as being synonymous, this paper treats them as distinct variables in an efficiency wage model. A wage rate increase is shown to give rise to two direct substitution effects that motivate the worker to provide more effort and hours. When a greater effort exerts a cross substitution effect that reduces hours, the hour supply curve may bend backward in the absence of an income effect.

The summer vacation: influences on the hours students work

The authors look at what determines the number of hours United Kingdom undergraduate students work in summer vacation employment. This is of interest because such employment is now, because of the nature of the United Kingdom Higher Education system, providing an important means of financing for students. They find the differing personal characteristics of students do not, either on their own or collectively, exert a significant influence on the total number of hours individual students were employed during their summer vacation. This finding would suggest that students were treated, in the labour market, as a homogeneous group although the students themselves exercised a degree of self-selection regarding the decision as to whether to seek full or part-time employment. A possible explanation for these findings is the similarity of the work being sought by students during the summer vacation. The authors find no evidence of a backward bending labour supply curve for students which may be due to the limited time period students were to spend in the labour market and the temptation of extra income to offset the need for loans.

Pension burdens and labor force participation in Kazakstan

This paper examines the pressures imposed by the vast pension system in the former Soviet republic of Kazakstan. Today, some 17% of the country receives pension payments, one of the highest rates in the world — despite the fact that Kazakstan is only now completing its demographic transition. Using a pooled regional-time series data set from pre- and post-Soviet eras, the paper also examines determinants of pension populations and the labor force participation rate. It finds that Kazakstanis in the post-Soviet era respond to price incentives both with respect to real pensions and real wage rates — in stark contrast to dramatically backward-bending labor supply curves of the Soviet era.

Leisure/Labor Tradeoffs: The Backward-Bending Labor Supply in Fisheries

Economists have understood that the open-access nature of fishing grounds can cause the long-run fishery supply to bend backward. There is also increasing speculation that fishermen respond to falling output price either by increasing or decreasing effort, depending on the circumstances. This suggests a short-run backward-bending supply of fishing labor. A dynamic, utility-theoretic model of fishermen's behavior is developed to address this possibility. The model highlights both contemporaneous and intertemporal trade-offs between labor and leisure. The model is tested and the results indicate that the short-run labor supply in fisheries may exhibit backward-bending properties. In addition, changes in current prices may trigger changes in expectations of future prices, causing potentially greater counterintuitive behavior. These results challenge many traditional regulatory strategies (e.g., output taxes) that address problems of open access.

Forward falling labour supply and monopsony equilibrium with an application to LDC labour markets

This paper demonstrates that labour supply curves can be forward falling just as they can be backward bending. Both types of supply curves are consistent with utility maximizing behaviour. Both types of supply curve lead to the possibility of multiple equilibria. A monopsonist's global profit maximum always occurs in the positively sloping segment of a backward bending labour supply curve. But if the supply curve is forward falling, the global maximum is always in the negatively sloping segment. When applied to LDCs the presence of monopsony in a labour market with forward falling labour supply provides new insights into the behaviour of output following land reform.

Taxation in Empirical Labour Supply Models: Lone Mothers in the UK

Taxation has become an integral part of the empirical specification of labour supply models. The opportunity set available to workers is made significantly non-linear by the workings of the tax (and benefit) system and this, in turn, complicates an individual's optimal choice of labour supply. In such a framework the relationship between hours of work, gross wages and other income is necessarily non-linear. Moreover, the marginal wage and virtual income at any chosen hours of work are an implicit function of the hours choice itself. To guarantee a unique solution to this choice problem consumer theory places integrability conditions on the form of wage and income derivatives of labour supply. Similarly, once the problem is made stochastic and econometric methods are utilised to recover unknown parameters, a coherency condition is required to define a well behaved econometric model (see Heckman (I 978) and Gourieroux et al. (I980)). In the labour supply and taxation framework these two conditions are quite naturally closely related. They do, however, have implications for labour supply specification and the reliability of tax reform simulations based on empirical labour supply models. For the case of the linear labour supply model, MaCurdy et al. (I990) document the potential for misleading results that may occur once a linear model is utilised in a framework with non-linear taxation. Such a specification all but guarantees a global forward sloping labour supply function which is not a requirement of economic theory and is empirically often too restrictive. In this paper we focus on two issues. The first relates to the specification of a flexible model allowing backward bending labour supply. The second issue relates to the statistical coherency of such a model in the presence of non-linear taxation. The empirical application in this paper concerns the labour supply behaviour of lone mothers in the UK. This group face a highly non-linear budget constraint. The analysis of their labour supply responses is crucial for the design of effective policy reforms. We use a labour supply specification suggested by

Poverty and the forward-falling labor supply function: A microeconomic analysis

Existing subsistence, efficiency, target income and limited aspiration theories impose a backward-bending labor supply behavior on poor workers in less developed countries. Recent empirical studies of worker behavior in the unorganized sectors of LDCs contradict this view and report evidence of both a forward-falling and an upward-rising labor supply. This study formulates an increasing elasticity of substitution utility function model to analyze the observed behaviors. The function displays both nonhomotheticity and variable elasticity properties, and is capable of generating labor supply curves with forward-falling and upward-rising segments. While the upward-rising supply is considered to be usual worker behavior, the forward-falling segment represents a below-subsistence distress sale phenomenon, and the subsistence income of the worker is implied to occur at the turning point joining the two segments of the supply curve. Econometric estimates of the utility and the labor supply functions provide support to the theoretical results.

Trade creation, trade diversion and elastic labor supply

Welfare effects of a customs union are examined in a two-sector model of a small open economy with elastic labor supply. It is shown that with positive labor supply elasticity and noncomplementarity of leisure and capital intensive good, the conventional results in customs union theory will (will not) hold if the production effect of discriminatory tariff change is weaker (stronger) than its direct leisure effect. However, in the presence of complementarity, or backward bending labor supply, or both, the results become ambiguous, so that trade creation (diversion) might reduce (increase) welfare.

Utility Maximization, Individual Production, and Market Equilibrium

This paper constructs an equilibrium model of the supply behavior of an industry comprised of utility maximizing owner-operators, and derives its implications for empirical work. Except for the case of long-run constant costs, the perverse results for the firm (a backwar d-bending labor supply curve for the entrepreneur may lead to a negatively-sloped product supply curve and positively-sloped input demand curve) carry through to the industry. New results include the finding that, under increasing costs, a rise in entry costs can lead to a fall in price, even when the entrepreneur's labor supply curve is upward sloping.

Resource allocation in a general equilibrium model of production under uncertainty: The case of variable supply of labor

This paper examines the effects of a marginal change in uncertainty on resource allocation and factor rewards by relaxing the assumption of factor inelasticity. We demonstrate that integrating a variable labor supply into Batra's two-sector uncertainty model can mitigate or reverse many of the earlier results. Specifically, a marginal increase in uncertainty may trigger the resource to move from the certainty sector to the uncertainty sector in the presence of a backward-bending labor supply curve.