Chapter 04 - Lecture Outline

Chapter 04 - Lecture Outline - Chapter Four Chapter Labour...

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Chapter Four Chapter Four Labour Supply over the Life Cycle Labour Supply over the Life Cycle Chapter 4 1
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Learning Objectives Labour Supply Patterns Lifetime Planning and Wage Elasticity Labour Supply Over the Lifetime Household Production and Economics of Family Fertility and Women’s Labour Supply Decisions Retirement Decision and Pensions Old Age Security CPP/QPP Employer-Sponsored Occupational Chapter 4 2
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Labour Force Participation Profiles Chapter 4 3
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Labour Force Participation Rates Chapter 4 4 A B C D E
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Labour Force Participation Rates Women Data more complicated to interpret Society/economic factors influence women’s participation rates Generally shaped like men’s participation Slower entry into labour market Has been rising since 1971 Chapter 4 5
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Dynamic Life Cycle Model A model based on the assumption that individuals plan out their lifetime supply of labour given their expected economic environment (specifically wages and other income). Thus, the labour supply decision in any one time period is connected to the decisions made in all time periods. Chapter 4 6
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Dynamic Life Cycle Model Basic Assumptions: preferences over consumption and leisure today and in the future maximize utility function optimize consumption and leisure in each period of time given expected lifetime budget constraint Chapter 4 7
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Dynamic Life Cycle Model Using income-leisure model over life time: U = u( C 1 , C 2 , C 3 ,…, C N ; l 1 , l 2 , l 3 , …, l N ) Where, U = Utility function over life time, N C = Consumption l = Leisure Chapter 4 8
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Dynamic Life Cycle Model Income constraint in one period: Income constraint in one period: Assume: Y = W*H and H = (T - l), Thus, Y = W(T - l), or Y = W*T - W*l, or Y + W*l = W*T But, Since Y = C Then: C + W*l = W*T This is the income constraint for a given period Chapter 4 9
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Adding time dimension to the basic income-leisure model: C i + W i * l i = W i * T To make the above relationship more meaningful we should calculate the future values in terms of their Present Values Present Values Chapter 4 10 Dynamic Life Cycle Model
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Optimization: Max. U = u( C 1 , C 2 , C 3 ,…, C N ; l 1 , l 2 , l 3 , …, l N ) Subject to the Constraint, C i + W i * l i = W i * T All measured in present values Chapter 4 11 Dynamic Life Cycle Model
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Chapter 04 - Lecture Outline - Chapter Four Chapter Labour...

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