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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