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ECON303: Labor Economics

  • Unit 2: Labor Supply  

    The past century has seen a number of dramatic shifts in labor trends.  This section attempts to explain some of major stylized facts observed over the last century.  For example, labor force participation rates in the United States have experienced dramatic changes in the past century.  This holds true for both men and women, though in different capacities: while labor force participation rates have steadily declined for men, there has been a huge increase in participation rates for women.  It is worth emphasizing that female labor force participation has been particularly steep among married women.  These dramatic shifts have been accompanied by sizeable declines in the average hours worked per week.  Economists have also observed that the labor supply tends to vary across other dimensions, such as race and education level, phenomena observed in other industrialized countries as well.  This observation has motivated much of the recent research conducted in the area of labor economics. 

    In this section, you will first learn about the neo-classical model of labor-leisure choice.  This model seeks to explain the factors that determine an individual's decision to work for pay and the number of hours he/she is willing to work.  You will then learn about the derivation of the labor supply curve and the measure of elasticity before discussing the impact that different government policies have on an individual’s decision to work.

    Please note that the material covered in subunit 2.1 pertains to the static theory of labor supply.  The last section in this unit, however, will present topics in labor supply studied over time.

    Unit 2 Time Advisory

    This unit should take you 10 hours to complete.

    ☐    Subunits 2.1-2.2: 5 hours

    ☐    Assessment: 3 hours

    ☐    Subunit 2.3: 2 hours

    Unit2 Learning Outcomes

    Upon completion of this unit, students will be able to:

    - Compare trends in labor force participation rates.

    - Calculate an individual’s decision to supply labor.

    • Identify the choices that affect an individual’s supply of labor over time.

    • Apply the theoretical concepts learned in this unit to government policies that influence the individual’s decision to work.
    • Lecture: SUNY-Oswego: Professor John Kane's Lecture notes on Introduction to Labor Economics: “Labor Supply I (Chapter 6)”

      Link: SUNY-Oswego:  Professor John Kane's Lecture notes on Introduction to Labor Economics:Labor Supply I (Chapter 6)” (HTML, Adobe Flash, or Powerpoint)
       
      Instructions:  Please click on chapter 6 from the Table of Contents.  Note that the material is presented in three formats: Single document HTML format, narrated PowerPoint, and PowerPoint Slideshow.  Please go through the narrated PowerPoint to best understand the material.  Note that there is no audio on these sets of slides.  You can read the HTML text to review the material after listening to the audio.  However, you may skip the notes presented in the PowerPoint slides as they are a repetition of the slides that accompany the audio. If the audio does not work at first, refresh your browser. This reading covers subunits 2.1.1-2.1.3 and subunit 2.2.
       
      Note: This reading explains the material with the aid of graphs.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

  • 2.1 The Decision to Work Model  

    • Reading: New York University: Professor Matthew Wiswall's “Lecture Notes on Labor Economics”

      Link: New York University: Professor Matthew Wiswall's “Lecture notes on Labor Economics” (PDF)
       
      Instructions:  Please click on “Lecture Notes” to access the pdf file with the lecture notes.  Scroll down to page 33, section 4 ("Labor Supply") and read the section in its entirety (i.e. all the way up to page 48).  This reading covers subunits 2.1.1-2.1.3.
       
      Note: This reading explains the material with the aid of mathematical tools.  If you wish to review the mathematical concepts on which this section is based, please read the pages 1-6 of these lecture notes and then return to the numerical examples covered in section 4.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

  • 2.1.1 Setting up the Model  

    Note: This subunit is covered by the reading assigned under Unit 2.

  • 2.1.2 Labor-Leisure Choice  

    Note: This subunit is covered by the reading assigned under Unit 2.

  • 2.1.3 Income Effects and Substitution Effects  

    Note: This subunit is covered by the reading assigned under Unit 2.

  • 2.2 Policy Implications  

  • 2.2.1 Cash Grants  

    Note: This subunit is covered by the reading assigned under Unit 2.

  • 2.2.2 The Earned Income Tax Credit  

    Note: This subunit is covered by the reading assigned under Unit 2.

    • Assessment: University of Wisconsin: Professor John Kennan’s “Assignments for Labor Economics Course”

      Link: Assessment: University of Wisconsin: Professor John Kennan’s “Assignments for Labor Economics Course” (HTML)
       
      Instructions:  Please click on Assignment 1 to answer the first two questions based on labor supply.  Click on “Answer Notes” to compare your results with the answers given.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

  • 2.3 Labor Supply Overtime  

    • Reading: SUNY-Oswego: Professor John Kane's Lecture notes on Introduction to Labor Economics: “Labor Supply II (Chapter 7)”

      Link: SUNY-Oswego:  Professor John Kane's Lecture notes on Introduction to Labor Economics: Labor Supply II (Chapter 7)” (HTML, Adobe Flash, or Powerpoint)
       
      Instructions:  Please click on Chapter 7 from the Table of Contents.  Note that the material is presented in three formats: Single document HTML format, narrated PowerPoint, and PowerPoint Slideshow.  Please go through the narrated PowerPoint to best understand the material.  You can read the HTML text to review the material after listening to the audio.  However, you may skip the notes presented in the PowerPoint slides as they are a repetition of the slides that accompany the audio. If the audio does not work at first, refresh your browser. This reading covers subunits 2.3.1-2.3.3.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

  • 2.3.1 The Theory of Household Production  

    Note: This subunit is covered by the reading assigned beneath subunit 2.3.

  • 2.3.2 Labor Supply over the Life Cycle  

    Note: This subunit is covered by the reading assigned beneath subunit 2.3.

  • 2.3.3 The Effect of Government Programs on Labor Supply  

  • 2.3.3.1 Social Security  

    Note: This subunit is covered by the reading assigned beneath subunit 2.3.

  • 2.3.3.2 Child Support Enforcement and Welfare Payments  

    Note: This subunit is covered by the reading assigned beneath subunit 2.3.

  • Unit 2 Guest Lecture  

    • Guest Lecture: TED talks: "Hanna Rosin: New Data on the Rise of Women"

      Link: TED talks: “Hanna Rosin: New Data on the Rise of Women” (YouTube)

      Instructions: This is an optional lecture and not a requirement of the course.  The introduction to this unit pointed out that the labor supply of women has changed over the years.  In this guest lecture, the speaker talks about the dramatic shifts in the power dynamics between men and women across the world.  Illustrating her point with statistical evidence, she explains what "polarization of the economy" means and how, for example, the recession affects men and women in different capacities.  This talk should enable you to think about the economic impact that changes like these bring about.

      Terms of Use: This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License. It is attributed to TED and the original version can be found here.