Chapter 6 - Chapter 6 Labor Supply I Introduction to Labor...

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Chapter 6 Labor Supply I
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Introduction to Labor Supply Labor facts Working men: decline in labor force participation from 90% in 1947 to 75% in 1990 Working women: rise in labor force participation from 32% in 1947 to 60% in 1990 Work hours fell from 40 to 35 per week during the same time period
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Measuring the Labor Force Current population survey (CPS) Labor Force = Employed + Unemployed LF = E + U Size of LF does not tell us about “intensity” of work Labor Force Participation Rate LFPR = LF/P P = civilian adult population 16 years or older not in institutions Employment: Population Ratio (percent of population that is employed) EPR = E/P Unemployment Rate UR = U/LF
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Measurement Issues Labor Force measurement relies on subjectivity and likely understates the effects of a recession Hidden unemployed: persons who have left the labor force, giving up in their search for work EPR is a better measure of fluctuations in economic activity than the UR
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Facts of Labor Supply More women than men work part-time More men who are high school drop outs work than women who are high school drop outs White men have higher participation rates and hours of work than black men
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Average hours worked/week, 1900-2005 30 35 40 45 50 55 60 1900 1920 1940 1960 1980 2000 2020 Year Weekly hours
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Worker Performance Framework used to analyze labor supply behavior is the Neo- Classical Model of Labor-Leisure Choice Utility Function – measure of satisfaction that individuals receive from consumption of goods and leisure (a kind of good) U = f(C, L), where U is an index Higher U means happier person
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Indifference Curves Downward sloping (indicates the trade off between consumption and leisure) Higher curves = higher utility Do not intersect Convex to the origin (indicating that opportunity costs increase)
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Indifference Curves Consumption ($) 500 450 400 40,000 Utils 25,000 Utils Hours of Leisure 150 125 100+
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Indifference Curves Do Not Intersect U 0 U 1 Y Z 0 Leisure Consumption ($)
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Chapter 6 - Chapter 6 Labor Supply I Introduction to Labor...

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