LaborSupply_6

LaborSupply_6 - Labor Supply Who supplies labor to the...

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1 Labor Supply Read pages: 165-192 Labor Supply Who supplies labor to the labor market? - Labor force: people actively seeking work - Labor force participation rate: % of population that either has a job or is looking for one. Two major trends - Women’s labor force participation - Decrease in length of career for men (Labor force participation rate ) TABLE 6.1 Labor Force Participation Rates of Females in the United States over 16 Years of Age, by Marital Status, 1900–2002 (percentage) TABLE 6.2 Labor Force Participation Rates for Males in the United States, by Age, 1900–2002 (percentage) The Decision to Work • The Consumption-Leisure Model – The individual has preferences over consumption and leisure. • Consumption encompasses everything the individual spends money on (other than income taxes) and is measures in dollars. – (e.g. food, clothes, housing, entertainment) • Leisure is any time spent outside of work, including household production, and is measured in hours. – (e.g. vacations, doing laundry, sleeping, exercise, movies) Preferences The standard assumptions on preferences apply to the consumption-leisure model. 1. Completeness 2. Non-satiation – More is better. 3. Transitivity – If bundle A is preferred to B and B is preferred to C, then A is preferred to C. 4. Diminishing Marginal Rate of Substitution – when leisure is low and consumption is high, the individual is willing to trade a lot of consumption for a little leisure. However, when leisure is high and consumption is low, the individual is willing to trade only a little consumption for a lot of leisure.
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2 Utility Function Preferences can be described by a utility function. If a utility function satisfies a preference relation, it must be that for
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This note was uploaded on 10/22/2008 for the course ECON 470 taught by Professor Yeonsookim during the Fall '08 term at Maryland.

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LaborSupply_6 - Labor Supply Who supplies labor to the...

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