Copyright © 2009 Pearson Education, Inc. Chapter 6 Supply of Labor to the Economy: The Decision to Work

Copyright © 2009 Pearson Education, Inc.

Chapter 6

Supply of Labor to the Economy: The Decision to Work

Copyright © 2009 Pearson Education, Inc. 6- 2

Table 6.1: Labor Force Participation Rates of Females in the United States over 16 Years of

Age, by Martial Status, 1900-2005 (percentage)


Table 6.2: Labor Force Participation Rates for Male in the United States, by Age,

1900-2005 (percentage)


Table 6.3: Labor Force Participation Rates of Women and Older Men, Selected Countries, 1965-2004 (percentage)


Important Definitions - The Decision to Work I

Work vs. LeisurePure Income and Substitution EffectsIncome and Substitution Effects of A Wage ChangeBackward Bending Labor Supply Curve


Figure 6.1: An Individual Labor Supply Curve Can Bend Backward


Important Definitions - Indifference Curves I

Characteristics

Each combination along an IC represents the same level of utility IC’s further from origin represent higher levels of utility IC’s do not intersectIC’s are negatively slopedIC’s are convex (Marginal Rate of Substitution Declines)


Figure 6.2: Two Indifference Curves for the Same Person


Figure 6.3: An Indifference Curve


Figure 6.4: Indifference Curves for Two Different People


Important Definitions - Consumer Equilibrium

Budget Constraint Wage Rate and the Slope of the Budget Constraint Tangency Condition for Consumer EquilibriumCorner SolutionPure Income Effect and Consumer Equilibrium


Figure 6.5: Indifference Curve and Budget Constraint


Figure 6.6: The Decision Not to Work is a “Corner Solution”


Figure 6.7: Indifference Curves and Budget Constraint (with an increase in nonlabor income)


Income and Substitution Effect of a Wage Change

Solution When Substitution Effect Dominates

Solution When Income Effect Dominates


Figure 6.8: Wage Increase with Substitution Effect Dominating


Figure 6.9: Wage Increase with Income Effect Dominating


Figure 6.11: The Size of the Income Effect is Affected by the Initial Hours of Work


Important Definitions - Policy Applications

Unemployment Compensation Guaranteed Annual Income Workfare


Figure 6.13: Budget Constraint with a Spike


Figure 6.14: Income and Substitution Effects for the Basic Welfare System


Figure 6.15: The Basic Welfare System: A Person Not Choosing Welfare


Figure 6.16: The Welfare System with a Work Requirement


Example 6.6: Wartime Food Requisitions and Agricultural Work Incentives


Figure 6.17: Earned Income Tax Credit (Unmarried, Two or More Children), 2006

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Copyright © 2009 Pearson Education, Inc. Chapter 6 Supply of Labor to the Economy: The Decision to Work