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Unformatted text preview: Chapter 2: Labour Supply: Individual Attachment to the Labour Market Introduction • individuals have to make two key labour supply decisions: whether to work (participate in the labour market), and how much to work (for example, how many hours per week) o the 'whether to work' decision is a discrete yes/no choice, with only two possible outcomes o the 'how much' decision involves a continuous range of possibilities, for example, 1, 2, ... 10, 11, ... 20, 21, ... 30, 31, ... 40, 41, ... 50, etc. hours per week • microeconomic consumer theory is used to study these two key labour supply decisions o we assume that each individual maximizes a utility function subject to an income budget constraint • the basic analytical diagram used in labour supply analysis consists of a set of indifference curves and an income budget line representing the individual's income opportunities o as we shall see, in labour supply analysis the horizontal axis for the indifference curve diagram is a bit tricky and the income budget line can be kinky • indifference curve analysis is used to determine how labour supply decisions (whether to work and how much to work) are affected by the wage rate, the amount of non-labour income available to the individual, and the individual's preferences for work versus leisure (time spent not working) Labour Force Participation • before we tackle labour supply theory, we briefly review how labour force participation is measured in Canada and recent developments in labour force participation • once a month interviewers from Statistics Canada question approximately 100,000 Canadians in about 54,000 households to determine their labour force status o every member of the 'working-age population' is classified in one of three categories: 'employed,' 'unemployed,' or 'not in the labour force.' • the working-age population is defined as all persons 15 years of age or older, excluding full-time members of the armed forces, people living in the Northwest Territories, Yukon, and Nunavut, people living on Indian reserves, and inmates of institutions such as prisons and hospitals • the employed consist of those persons in the working-age population who did any work at all during the previous week, or who have a job but were not at work for some reason such as illness, personal responsibilities, bad weather, labour disputes (a strike or lockout), or on vacation o part-time workers and self-employed individuals are included in the employed category • the unemployed consist of all persons in the working-age population who are not currently working...
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- Winter '11
- Economics, wage rate, labour force participation, income budget line