Labor Supply

Note: These comments are provisional and incomplete and do not guarantee there is no error. Please let me know if you find misspellings or other mistakes

Previously, I was supplying a certain labor force. In other words, the company assumes that it is possible to employ as many workers as possible based on current real wages. In fact, we must recognize how much labor can be selected by workers, and that this labor supply decision interacts with the labor needs of the enterprises to determine the actual wages and levels of employment in the economy Hmm. The labor supply decision includes the following aspects.

Balance of labor and leisure facing individuals. Workers get income from their jobs, work, and cost other than work.

Labor and leisure decisions are cross-time decision-making issues. When deciding how long to work today, workers will consider current and future leisure as well as current and future consumption.

Let us consider how the current rise in real wage affects the labor supply of workers. From the viewpoint of microeconomics, we recognize that there are two kinds of offset effects.

As w increases, income increases, work gets more work, laborers replace work and leisure, so labor supply NS increases

Even if w increases, income increases even for the same working time, so labor can reduce labor hours and maintain previous income level, so labor supply NS will decrease

It depends on personal preferences for current and future consumption and leisure, so it is ambiguous which effect will win when w increases.

According to Mark Killingsworth's book "Labor Supply", for the US data, the temporary rise in real wage tends to increase the NS of labor supply and the permanent increase in w tends to lower NS It has been reported. This means that the replacement effect becomes stronger for temporary increase in w, and the benefit effect becomes stronger for permanent effect.

Current increase in real wages, correction of all other problems, increase in labor supply, NS is expressed as movement along the curve

It means to raise the real wage in the future, to solve all other problems, to reduce labor supply, that is to move the NS curve to the left

Increasing wealth, solving all other problems, labor supply will decline. That is, the NS curve moves to the left.

The amount of labor provided may be affected by wages 3. However, there is no general rule on the direction of effect. The labor supply of some people is a function of wage increase and some people's labor supply is a decreasing function of wages. There are other people whose labor supply may be a nonmonotonic function of wages. As shown in Figure 13.2, the backward bending labor supply curve is very common at least in textbooks. The inverted S-shaped labor supply curve is discussed in the literature of development economics (Sharif 2003).

What kind of events changed the labor supply curve? People provide labor to raise their usefulness - just as they need goods and services to enhance their usefulness. The labor supply curve varies based on changes in the same set of factors that change the demand curve for goods and services. Changes in attitude towards work and leisure may change the supply curve of the labor force. If you think that people pay more attention in leisure time, working hours per wage will decrease and the labor supply curve will move to the left. If they decide that more products or services are needed, the supply curve may move to the right.

If the elasticity of labor supply is less than 1 in absolute value, the labor supply curve is considered to be inelastic. In other words, changes in working hours are relatively small for specific changes in wage rates. If the elasticity of labor supply is greater than 1 in absolute value - indicating that labor hours are greatly affected by fluctuations in wages - the labor supply curve is said to be flexible. In the numerical example of equation (2-12), it is clear that labor supply is inelastic. Eventually wages doubled (100%), labor supply increased by only 10%.