Labor Supply Curve Research Articles

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.

The desire for impact

This paper explores the meaning and implications of the desire by workers for impact. We find that this impact motive can make a firm in a competitive labor market face an upward-sloping supply curve of labor, lead workers with the same characteristics but at different firms to earn different wages, may alleviate the hold-up problem in firm-specific investment, can make it profitable for an employer to give workers autonomy in effort or task choice, and can propagate shocks to unemployment.

The impossibility of a perfectly competitive labour market

Using the institutional theory of transaction costs, I demonstrate that the assumptions of the competitive labour market model are internally contradictory and lead to the conclusion that on purely theoretical grounds a perfectly competitive labour market is a logical impossibility. By extension, the familiar diagram of wage determination by supply and demand is also a logical impossibility and the neoclassical labour demand curve is not a well-defined construct. The reason is that the perfectly competitive market model presumes zero transaction costs and with zero transaction costs all labour is hired as independent contractors, implying that multi-person firms, the employment relationship and labour market disappear. With positive transaction costs, on the other hand, employment contracts are incomplete and the labour supply curve to the firm is upward sloping, again causing the labour demand curve to be ill-defined. As a result, theory suggests that wage rates are always and everywhere an amalgam of an administered and bargained price.

WORKERS SHOULD WANT TO PAY MORE FOR SOCIAL SECURITY

I. INTRODUCTION Although economic theory cannot resolve all the controversies concerning Security, simple supply and demand analysis can helpfully change the terms of the debate concerned with how the Security tax is divided between employers and workers. Defenders of the existing system typically argue that workers pay only half the tax (6.2%) because, as required by law, the other half is paid by employers. Opponents of the existing system typically argue that workers pay all of the Security tax because their compensation is reduced by employers to offset their portion of the tax. For example, former House Majority Leader Dick Armey (2005) states that Social Security alone takes 12.4 percent of workers' incomes. That's more than most workers pay in income taxes. In a reply to Armey, Marilyn Scheiner (2005) states that Armey should have said that Social Security alone takes 6.2 percent of workers' income. The employer matches the employee's contribution for a total of 12.4 percent going into the Security coffers. (1) The first thing economic analysis tells us about this debate is that both sides are wrong on the facts, barring unlikely conditions. The second and more interesting insight is that each side of the debate is making a claim that supports the position of the other side. Any student in an economic principles course should know that the distribution of a payroll tax burden depends on the relative elasticities of the labor demand and supply curves. If the labor supply curve is very inelastic relative to the labor demand curve, then most of the burden of a payroll tax will fall on the workers. On the other hand, if the labor demand curve is very inelastic relative to the labor supply curve, most of the burden will fall on the employer. So the debate over who bears most of the cost of the Security tax has to consider the relative elasticities of labor supply and demand. What the Security legislation states about the distribution of the tax burden is completely irrelevant. (2) This may seem to suggest that the opponents (supporters) of Security should argue that labor supply is less (more) elastic than labor demand, because this implies that less (most) of the tax burden is borne by the employer. But why should the desirability of Security depend on the distribution of the tax burden? Supposedly there are benefits from Security, so its desirability should depend on how those benefits compare to the tax and how the net benefits are distributed. Even though labor supply and demand elasticities are relevant to the distribution of gains or losses from Security, we shall see that the desirability of Security (as measured by its net value and its benefits to workers) is completely independent of those elasticities. Once we take into consideration the benefits of Security, we find that when advocates and opponents argue over the incidence of the tax, they have their arguments completely backward. The strongest argument in favor of Security is that workers are paying more than its cost. On the other hand, the strongest argument against Security is that the burden of financing it falls mostly on employers. If employers are paying most of the cost of Security, then, for the sake of workers, it should be scrapped immediately. II. SOCIAL SECURITY AND SHIFTS IN THE LABOR SUPPLY AND DEMAND CURVES Our argument is based on straightforward implications of labor supply and demand curves shifts in response to the costs and benefits of Security. (3) We begin in Figure 1 with labor supply curve S and labor demand curve D, assumed relevant without (before) Security. The vertical axis represents the monetary wage and the horizontal axis represents the quantity of labor. The equilibrium wage and labor quantity are given by [W.sub.B] and [L.sub.B], respectively. …

Dynamic Monopsony: Evidence from a French Establishment Panel

This paper uses a panel of about 6000 French establishments to test some implications of the modern theory of dynamic monopsony or upward‐sloping labour supply curves for average firm wages. Panel estimates provide strong evidence of a much larger long‐run employer size–wage effect (ESWE) than found previously, while controlling for worker quality and compensating differentials with lagged wages, and for profitability (rent‐sharing). Employment expansion also has a positive effect on wages, providing further evidence for upward‐sloping labour supply (as distinct from the effect of shocks in a perfectly competitive labour market).

The Supply of Labour in Perfectly Competitive Market

It is an e-learning material for Graduate students of Economics. It derives supply curve of labour for an individual and for the market in a competitive set up.

A Collective Household Model of Time Allocation - a Comparison of Native Dutch and Immigrant Households in the Netherlands

Although the number of immigrant households in the Netherlands is substantial, the labor supply choices of this group are usually neglected in empirical studies because these households are usually under-sampled. We use a stratified sample of Turkish, Surinamese/Antillean and Dutch households that enables us to discuss how two-earner households allocate their time to different activities. In order to do so, we empirically estimate a collective household labor supply model. The main findings are that: (1) Leisure and household income are the most important variables in the utility function of the male; (2) Leisure, total household production and total household production interacted with family size are important variables in the utility function of the female. The latter two are especially important for Turkish and Surinamese/Antillean females; (3) The utility of Turkish and Dutch males weighs slightly more than the utility of the partner in the household utility function. For Surinamese/Antillean families we find the opposite; (4) Utility weighting depends on the presence of children and on the hourly wage rates of both partners; (5) The labor supply curve is forward bending for both male and female in terms of their own wage. The labor supply curve is backward bending for both male and female in terms of the partner’s wage. We find this for all household types; (6) The presence of (more) children reduces the hours of labor supplied by women and increases the number of hours supplied by men.

The Impossibility of a Perfectly Competitive Labor Market

Using the institutional theory of transaction cost, I demonstrate that the assumptions of the competitive labor market model are internally contradictory and lead to the conclusion that on purely theoretical grounds a perfectly competitive labor market is a logical impossibility. By extension, the familiar diagram of wage determination by supply and demand is also a logical impossibility and the neoclassical labor demand curve is not a well-defined construct. The reason is that the perfectly competitive market model presumes zero transaction cost and with zero transaction cost all labor is hired as independent contractors, implying multi-person firms, the employment relationship, and labor market disappear. With positive transaction cost, on the other hand, employment contracts are incomplete and the labor supply curve to the firm is upward sloping, again causing the labor demand curve to be ill-defined. As a result, theory suggests that wage rates are always and everywhere an amalgam of an administered and bargained price.

Physicians' Labour Supply: The Wage Impact on Hours and Practice Combinations

It is a stated aim to improve physician services in underserved sectors and areas. Increased wages is one instrument for boosting the hours provided by the personnel to the prioritized sub-markets. This study applies an econometric framework that allows for non-convex budget sets, non-linear labour supply curves and imperfect markets with institutional constraints. The labour supply decision is viewed as a choice from a set of discrete alternatives (job packages) in a structural labour supply model estimated on Norwegian micro data. An out-of-sample prediction is also presented and evaluated by means of a natural experiment. Copyright 2005 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

Non-Pecuniary Work Incentive and Labor Supply

Recognizing that people value employment not only to earn income to satisfy their consumption needs, but also as a means to gain socio-psychological (nonpecuniary) benefits, we show that once nonpecuniary work incentives are incorporated into standard labor supply theory, (i) the wage rate under-estimates (over-estimates) the true value of nonwork/leisure time when work has nonpecuniary benefits (costs), (ii) nonpecuniary benefits can be a substitute for monetary wages as work incentives, (iii) at very low wage rates, work can become a net source of utility, and (iii) the shape of labor supply curve differs from standard theory. We also identify conditions under which a greater nonpecuniary work incentive generates a larger individual labor supply, and examine the effects of non-wage income on labor supply both for paid and voluntary work.

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.

Work for all those who want it? Why the neoclassical labour supply curve is an inappropriate foundation for the theory of employment and unemployment

This paper questions the usefulness of the neoclassical labour supply curve as a factor in the theory of employment and unemployment. This curve rests on the false premise that workers can 'choose' whether to work or not, and gives credence to the idea that all unemployment constitutes chosen leisure. Despite this, it was used by Keynes to define the point of full employment. This contributed to the misleading impression that the level of full employment is determined by psychological factors. Challenging this view, Joan Robinson sought to integrate a wider set of issues into the theory of labour supply, in order to build a different (non-neoclassical) foundation for Keynes's theory of effective demand. Drawing upon Robinson, the paper argues against the use of the neoclassical labour supply curve within macroeconomic analysis. Copyright 2006, Oxford University Press.

The economic cost of behavioural disorders in substitute care

In South Australia, special need loadings are paid to foster carers to compensate them for the additional cost associated with caring for more challenging children. The results showed that loadings are more likely to children who had significant behavioural problems. This situation is discussed in terms of the increasing inelasticity of the labour supply curve applying to foster parents who provide care to children with this characteristic. The magnitude of this effect was estimated using a logistic regression model with loading status as the dependent and conduct disorder as a predictor. It was found that the application of extra loadings (usually a doubling of the payments requested) was over three times higher for children with significant behavioural problems compared with children without these difficulties. This suggests that the baseline analysis of child characteristics may provide quite precise estimates of the potential financial costs of foster-care services.

Are Employment Effects of Gender Discrimination Important? Some Evidence from Great Britain

Interpreting the unexplained component of the gender wage gap as indicative of discrimination, the empirical literature to date has tended to ignore the potential impact wage discrimination may have on employment. Employment effects may arise if discrimination lowers the female offered wage and the labour supply curve is upward sloping. The empirical analysis employs the British Household Panel Study and finds evidence of both wage and associated employment effects.

Implications for minimum-wage policies of an S-shaped labor–supply curve

A model of family labor supply provides a rationale for raising minimum wages when the labor–supply response is negative at low wages. Under those circumstances, the labor market can be caught in a Malthusian poverty trap of excess supply (unemployment, overextended workdays, child labor) and falling wages. Raising minimum wages may therefore help resorb this excess supply and stabilize the labor market, setting a “virtuous” cycle in motion. In a two-sector context, such a policy would increase wages in both the covered and uncovered sectors. Evidence from a study of Costa Rica, in particular, is consistent with those conclusions.

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.

Changes in Male Labor Supply and Wages

In the 1980s, both wages and labor supply of poorly educated men fell substantially relative to those of educated men. Some observers have interpreted this positive association between changes in wages and labor supply as reflecting movement along stable labor supply curves. The author casts doubt on this interpretation by showing that the wage elasticity necessary to account, by itself, for the observed labor supply decline would greatly exceed elasticity levels typically found in prior studies. Analysis of Census data shows little relationship between changes in relative wages at the state level and changes in male labor supply. Also, panel data analysis shows no strong correlation between long-run changes in individual hours and wages. The small implied labor supply elasticities suggest that very little of the labor supply changes of men during the 1980s can be related to changes in relative wages.

Teaching Keynes's Principle of Effective Demand Using the Aggregate Labor Market Diagram

The authors suggest a way to teach Keynes's principle of effective demand using a standard aggregate labor market diagram that should be familiar to students taking an advanced undergraduate course in macroeconomics. The analysis incorporates Kalecki's version of the effective demand model to show Keynesian unemployment as a point on the aggregate labor demand curve inside the aggregate labor supply curve. The well-known Keynesian policy conclusions apply. In particular, workers and firms are unable to restore full employment by reducing real wages, underlining how important is the macroeconomic duty of the monetary and fiscal authorities to manage aggregate demand growth.