LABOR SUPPLY : THEORY AND EVIDENCE

1. LABOR SUPPLY : THEORY AND EVIDENCE Hewi-Lin Chuang, Ph.D. 2012/03/07

2. 安胎假 王如玄：多數盼兼顧工作 雇主成本不會大增 2010-03-08 新聞速報 【中廣新聞／繆宇綸】 2010-03-08工商時報【記者呂雪彗／台北報導】 • 今天是國際婦女節，政府打算5月底修訂完成勞工請假規則，擴大住院病假定義，推出安胎假。 • 安胎假﹕懷孕婦女，只要取得醫生證明須在家安胎休養，得留職停薪且續享有勞保保障， 一經提出雇主不得拒絕。 • 勞委會主委王如玄表示，過去孕婦請假常會遭到刁難，陷入為保全胎兒而辭職，或是冒著母子安全危險繼續工作的兩難。安胎假有助推動婦女工作與家庭平衡。

3. 安胎假 王如玄：多數盼兼顧工作 雇主成本不會大增 • 勞資雙方各有不同反應﹕ • 資方尤其擔心會增加人事成本 • 勞工團體擔心安胎假會「看得到吃不到」 • 王如玄表示，其實並不會出現每個懷孕婦女都會請滿9個月安胎假的情形，不會如雇主所想像，增加那麼多的人事成本。相信多數資方團體經過溝通說明後是可以接受的。如果婦女休完安胎假返回職場遭到排擠，這違反性別工作平等法，可以處4到50萬元罰鍰，如果婦女需要職業技術銜接，政府也會提供職訓。 • 資料來源﹕ http://news.chinatimes.com/2007Cti/2007Cti-News/2007Cti-News Content/0,4521,50203025+132010030800856,00.html http://news.chinatimes.com/2007Cti/2007Cti-News/2007Cti-News-Content/0,4521,50203025+122010030800151,00.html

4. Labor Supply : Theory and Evidence Labor supply decisions can be roughly divided into two categories: (1) Decisions about whether to work at all, if so, how long to work. (2) Decisions about the occupation or general class of occupation in which to seek offers and the geographical area in which offers should be sought.

5. 1. Some Stylized Facts about Labor Supply • Trends in LFP: (1) 女性勞動參與率由1964年的34%逐漸上升 至 1986年的45%，1986-1999年則維持在45%左 右， 1999年開始逐漸上升，至2008年已達到49.67%。  男性勞參率由1978年的77.96%逐漸下降至2008 年的67.09%。 (2)  15-19歲組勞參率由1978年的45%顯著下降至 2003 年的12%，至2008年都維持在10%上下。 20-24歲組勞參率由1978年的65%逐漸下降至 2005年的53%， 自2005年始到2008年為止都在 53%上下起伏。  其他各年齡組均呈現上升或持平之趨勢。

6. 台灣歷年勞動力參與率-按年齡組別分

7. 台灣歷年勞動力參與率-按年齡組別分

8. 台灣歷年勞動力參與率-按年齡組別分

9. 台灣歷年勞動力參與率-按教育組別分

10. 台灣歷年勞動力參與率-按教育組別分

11. 台灣歷年勞動力參與率-按教育組別分

12. 台灣歷年勞動力參與率-按婚姻別分

13. 台灣歷年勞動力參與率-按婚姻別分

14. 台灣歷年勞動力參與率-按婚姻別分

15. Trends in Hours of Work: (1)平均每人每週主要工作工時在1993-2000年間均為46小時左右，在2001-2007年維持在44小時附近，到2009年七月時下降至為43.46小時，2010年1月則上升至44小時。 男性平均工時由1978年的每週50小時下降至2003年的44.96小時，之後有稍微增加，到2010年1月時又降為為每週44.2小時。 女性平均工時則由1978年的每週46小時上升為1993年的46.47小時，之後下降至2008年的43.35小時，到2010年1月時為43.73小時。

16. 臺灣地區就業者平均每人每週主要工作時數

17. 2. A Theory of The Decision to Work • The decision to work is ultimately a decision about how to spend time. Spend time in pleasurable leisure activities Use time to work (working for pay) • The discretionary time we have (24 hours – time spent eating and sleeping) can be allocated to either work or leisure. Demand for Leisure Supply of Labor.

18. Basically, the demand for a good is a function of three factors: • The opportunity cost of the good. • One’s level of wealth. • One’s set of preference. The demand（D） for a normal good can be characterized as a function of opportunity cost（C）and wealth（V） D = f（C, V）

19. Where f depends on preferences. Demand for Leisure: (1) The opportunity cost of an hour of leisure is very closely related to one’s wage rate. For simplicity, we shall say that leisure’s opportunity cost is the wage rate. (2) Economists often use total income as an indicator of total wealth, since the two are conceptually so closely related. Demand for leisure function becomes DL = f（W, Y）

20. (1) If income increases, holding wages（and f）constant, the demand for leisure goes up. If income increases（decreases）, holding wages constant, hours of work will go down（up）. Income effect on hours of work is negative. Income Effect =

21. Consumption ($) F1 F0 P1 U1 P0 $200 E1 U0 $100 E0 110 70 80 The Effect of a Change in Nonlabor Income on Hours of Work Hours of Leisure An increase in nonlabor income leads to a parallel, upward shift in the budget line, moving the worker from point P0 to point P1. If leisure is a normal good, hours of work fall.

22. Consumption ($) F1 P1 F0 U1 P0 $200 E1 U0 $100 E0 110 70 60 The Effect of a Change in NonlaborIncome on Hours of Work An increase in nonlabor income leads to a parallel, upward shift in the budget line, moving the worker from point P0 to point P1. If leisure is inferior, hours of work increase.

23. (2) If income is held constant, an increase（decrease）in the wage rate will reduce（increase）the demand for leisure, thereby increasing（decreasing）work incentives. Substitution effect on hours of work is positive. Substitution Effect =

24. Both Effect Occur When Wages Rise Income effect: For a given level of work effort, he/she now has a greater command over resources than before because more income is received for any given number of hours of work. Substitution effect: The wage increase raises the opportunity costs of leisure, and thereby increases hours of work.

25. More Leisure at a Higher Wage When the income effect dominates the substitution effect, the worker increases hours of leisure in response to an increase in the wage. Consumption ($) G U1 R D Q U0 D F P V E Hours of Leisure 110 0 70 75 85

26. Consumption ($) U1 G R D Q U0 D F P V E 110 0 65 80 70 More Work at a Higher Wage When the substitution effect dominates the income effect, the worker decreases hours of leisure in response to an increase in the wage. Hours of Leisure

27. If income effect is dominant, the person will respond to a wage increase by decreasing his/her labor supply. Should the substitution effect dominate, the person’s labor supply curve will be positively sloped. Wage Backward-bending W* Desired hours of work

28. 3. A Graphic Analysis of the Labor-Leisure Choice Two categories of goods: Leisure（L）and Money Income ( M ) Since both leisure and money can be used to generate satisfaction, these two goods are to some extent substitutes for each other. M Indifference Curve: A curve connecting the various combinations of money income and leisure that yield equal utility. A B IC2 C D IC1 L

29. Indifference curves have certain specific characteristics: • Any curve that lies to the northeast of another one is preferred to any curve to the southwest because the northeastern curve represents a higher level of utility. • Indifference curves do not intersect. • Indifference curves are negatively sloped. • Indifference curves are convex. • When money income is relatively high and leisure hours are relatively few, leisure is more highly valued than when leisure is abundant and income relatively scarce. • 5. Different people have different sets of IC’s

30. M M L L Person who place high value on an extra hour of leisure Person who place low value on an extra hour of leisure

31. The resources anyone can command are limited. Budget constraint reflects the combinations of leisure and income that are possible for the individual. M The slope of the budget constraint is a graphic representation of the wage rate. Wage rate = OE/OD E L 0 D

32. Consumption($) wT+V Budget Line V E Hours of Leisure 0 T Graphing the Budget Constraint

33. Note: Full income = wage rate * T →It represents the maximum attainable income. M At point B: MUL/MUM>W or MUL>W*MUM L should increase At point C: MUL/MUM<W or MUL<W*MUM L should reduce, or H should increase E B A* IC2 IC* C IC1 • An indifference curve that is just tangent to the constraint represents the highest level of utility that the person can obtain given his or her constraint. L D IC2：impossible under current condition IC1：possible, but higher level of utility can be attained IC*：utility-maximized level A* ：utility-maximization point

34. The Decision Not to Work What happens if there is no point of tangency? M The person’s IC are at every point more steeply than the budget constraint. Pt. D is not a tangency point. There can be no tangency if the IC has no points at which the slope equals the slope of the budget constraint. E L D At this point（D）the person chooses not to be in the labor force.

35. To Work or Not to Work? • Are the “terms of trade” sufficiently attractive to “bribe” a worker to enter the labor market? • Reservation wage: the lowest wage rate that would make the person indifferent between working and not working. • Rule 1: if the market wage is less than the reservation wage, then the person will not work. • Rule 2: the reservation wage increases as nonlabor income increases

36. The Reservation Wage Consumption ($) Has Slope -whigh H Y G X UH E U0 Has Slope -w T 0 Hours of Leisure

37. The Income Effect Nonlabor income: Even if this person worked zero hour per day, he/she will have this nonlabor income. M Note that the new constraint is parallel to the old one. →The increase in nonlabor income has not changed the person’s wage rate. E B A IC2 IC1 L D Pure income effect: The income effect is negative; as income goes up, holding wages constant, hours of work goes down.

38. Income and Substitution Effects with a Wage Increase The wage increase would cause both an income and a substitution effect; the person would be wealthier and face a higher opportunity cost of leisure. N1→N3: income effect → L↑, H↓ N3→N2: substitution effect →L↓, H↑ N1→N2: observed effect Substitution effect dominates. L↓, H↑ Income effect: Had the person received nonlabor income, with no change in the wage, sufficient to reach the new level of utility, he/she would have reduces work hours from N1 to N3.

39. N1→N3: income effect →L↑, H↓ N3→N2: substitution effect →L↓, H↑ N1→N2: observed effect Income effect dominates. L↑, H↓ Note: The differences in the observed effects of a wage increase are due to differences in the shape of the indifference curve. i.e., different preference.

40. Empirical Findings on the Labor/Leisure Choice • The time-series study can be used to look • at trends in labor force participation rates • and hours of work over time. • (2)The cross-section study can be used to • analyze the patterns of labor supply across • individuals at a given point in time.

41. 4. Policy Application Virtually all government income maintenance programs-from welfare payments to unemployment compensation-have work-incentive effect. (1) Income Replacement Programs Unemployment insurance, worker’s compensation, and disability insurance might be called income replacement programs. →All these programs are intended to compensate workers for earnings lost owing to their inability to work. Note: All these programs in the U.S. typically replace roughly just half of before-tax lost earning. The reason for incomplete earnings replacement has to do with work incentives.

42. Replacing all of lost income could result in overcompensation by generating a higher level of utility than before the loss of income, and would motivate the recipients of benefits to remain out of work as long as possible. M When employment ceases, the worker receives benefits equal to E0, he/she will be at pt. T on a higher IC. T E0 IC2 IC1 L

43. （2）Actual Income Loss vs. “Scheduled” Benefits Actual Income Loss: Workers who are either totally or partially disabled receive benefits that replace their actual lost earnings. M If the injured worker earned E0 before injury and workers’ compensation replaced all earnings loss up to E0, then workers’ compensated budget constraint would be ABCD line. D C B E0 L A Note: Throughout the horizontal segment BC, the individual’s net wage is zero. When people cannot increase their income by working, there is usually no incentive to work.

44. M Using an impersonal schedule of disability benefits preserves at least some incentive to work because benefits are not reduced if earnings increase. E D G C B → There are greater incentives to work if benefits are scheduled than if benefits are calculated to completely replace earnings losses. Scheduled benefits cause only an income effect. However, if actual earnings loss were to become the benefit, there would be an income effect and substitution effect, and both would work in the same direction. The benefits would simultaneously increase income while reducing the wage rate to zero. L A Grand benefit according to some schedule without regard to the individual’s actual earnings loss. → Budget constraint BE.

45. 5. Child Care, Commuting, and the Fixed Costs of Working (1) Fixed Monetary Costs of Working not work: at point a with utility U1 ab: fixed per-period monetary cost → If the individual works, the budget line starts from point b.

46. How large does the wage rate need to be to induce this person to work for pay? →The slope of the budget line bd represent the wage such that any decrease in this wage will cause the individual to drop out of the labor force. This is because utility U1 will no longer be attainable if he/she work any hour. →The wage represented by the slope of bd is this person’s reservation wage-the lowest wage for which he/she will work.

47. What would happen to the reservation wages if the fixed costs were to increase to ae? →An increase in the fixed costs of work will tend to raise the reservation wage of potential workers. Consider the change from bg to ef: →Increasing fixed costs of work will tend to increase the hours of work for some workers but cause others to drop out of the labor force. →The net effect on labor supply is ambiguous a priori.

48. (2) Fixed Time Costs of Working If the individual does work he/she incurs fixed time costs ab. →The maximum number of hours a day available for work or leisure is T1. At wage represented by bh, he/she would be indifferent between working (pt D) and not working (pt a). reservation wage

49. Suppose that the fixed time costs of work increase from ab to ad, then as long as leisure and income are both assumed to be normal goods, hours of both work and leisure time will be reduced. The increase in fixed time costs of work has an income effect that reduces the worker’s demand for both leisure and the goods income will buy. Given a constant wage rate, a fall in income implies that hours of work have been reduced. Note: The increase in time cost has two important consequences: （a）It reduces full income from og to ok. （b）It reduces total time available for either leisure or work so long as the individual continues to work.