# note8_n1 - Econ303 Household Decision on Consumption and...

This preview shows pages 1–3. Sign up to view the full content.

Econ303 Household Decision on Consumption and Leisure 1 Facts on labor supply in the US 1. The average hourly wage (real) in general increased from 1900 on. Hours per person stays more or less constant. Using the aggregate data, the average hourly wage is computed by the following: Average hourly wage = Total labor compensation Total hours where Total labor compensation = labor share × GDP Total hours = population × hours per person We know that in the US after the World War II, (a) GDP grows at a rate much higher than the population growth rate; (b) the labor share has been constant more or less; (c) hours per person does not change much. These facts imply that the average hourly wage must have gone up during this period. 2. The constant hours per person is the result of two offsetting forces: decreasing hours per worker and increasing proportion of population that goes to work. The way we actually compute the total hours is by the following Total hours = Employment × Hours per worker This implies that Hours per person = Employment Population × Hours per worker Even though hours per person has not changed much after the World War II, both hours per worker and employment population ratio changed quite a bit. From 1900 on, we observe a decline in hours per worker. The total number of hours worked in a week for average US workers was 54.3 at the turn of the 20th century. At the beginning of the great depression, it was 48. After the World War II, 38.8. At the beginning of the technology slowdown, right after the oil crisis, it further reduced to 38. In 1993, the average weekly hours is 37.2. The decrease of weekly hours during the first half of the twenties century is more dramatic than the second half. At the same time, the employment population ratio increased slightly after the World War II. This increase of the labor force participation of the total population is primarily driven by the large increase of the percentage of women, especially married women,

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Econ303 Household Decision on Consumption and Leisure 2 joined the labor force. The male labor force participation actually decreased during this period, mainly because the elderly men are dropping out of the labor force and also because people spend more years on schooling. The employment population ratio in 1948 was 56.6%, 83.5% for male and 31.3% for female. In 1993, the numbers was 64.5%, 71.8% and 57.7% respectively. 3. The micro data shows a positive relationship between hours worked and hourly wages. Workers with higher hourly wage put in more hours. The exception is at the high end of the wage distribution. As wage becomes very high, people actually cut back their working hours. So we have a slightly backward bending empirical labor supply curve. To explain these facts we need a model that tells us how households determine to go to work or not and if they do, how many hours they would like to work. In this section, we focus on a typical household’s choice between consumption and leisure. In our simple model, all the other aspects of household decision are ignored. In particular, we abstract away from various
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern