Labor Force Participation Rates and Labor Supply: A Comparative Analysis, Slides of Economics

Download Labor Force Participation Rates and Labor Supply: A Comparative Analysis and more Slides Economics in PDF only on Docsity! Labor Supply docsity.com Labor Force Participation Rates of Females in the United States over 16 Years of Age, by Marital Status, 1900–2002 (percentage) docsity.com Labor Force Participation Rates for Males in the United States, by Age, 1900–2002 (percentage) docsity.com TABLE 1B PARTICIPATION RATES OF MEN BY AGE AND EDUCATION, 1970-95 1970 1980 1990 1995 I. Total 0.935 0.898 0.888 0.874 II. By Age Age 25-34 0.965 0.950 0934 0.926 Age 35-44 0.971 0.953 0.942 0.914 Age 45-54 0.946 0.912 0.904 0.890 Age 55-64 0.834 0.726 0.671 0.661 Ill. By Age and Education A. Education < 12 years 0.893 0.794 0.751 0.720 Age 25-34 0.951 0.892 0.868 0.842 Age 35-44 0.947 0.885 0.818 0.756 Age 45-54 0.916 0.853 0.797 0.733 Age 55-64 0.793 0.621 0.537 0.508 B. Education = 12 years 0.963 0.922 0.899 0.869 Age 25-34 0.982 0.967 0.945 0.928 Age 35-44 0.982, 0.965 0.939 0.910 Age 45-54 0.963 0.926 0.911 0.869 Age 55-64 0.888 0.773 0.693 0.650 C. Education 13 to 15 years 0.958 0.927 0.915 0.901 Age 25-34 0.958 0.946 0.942 0.939 Age 35-44 0.983 0.968 0.960 0.933 Age 45-54 0.975 0.929 0919 0.909 Age 55-64 0.875 0.794 0.694 0.704 D. Education 16 + years 0.961 0.955 0.945 0.938 Age 25-34 0.954 0.960 0.952, 0.956 Age 35-44 0.988 0.985 0.983 0.970 Age 45-54 0.975 0.972 0.968 0.964 Age 55-64 0.900 0.850 0.797 0.777 docsity.com Labor Force Participation Rates of Women and Older Men, Selected Countries, 1965–2002 (percentage) docsity.com Budget Constraint 160 Leisure (Hours per day)8 10 166 60 80 100 0 A B D E G Consumption Good (Per Day) Points below line are affordable Points above line are unaffordable docsity.com 3 Budget Constraint Income or I Leisure (Hours per day)160 Consumption Good (Per Day) Slope=-W (when Pc=1) 160 Slope=-10 (when Pc=1) docsity.com Budget Constraint 192 Leisure (Hours per day)16 128 160 0 Consumption Good (Per Day) W=$8/hour W=$10/hour W=$12/hour docsity.com Indifference Curves U1 Combination B,A, & D yield the same satisfaction •E is preferred to U1 •U1 is preferred to H & G Leisure (hours per week) Consumption Good (units per week) G D A E B 1 2 3 4 10 20 30 40 50 H docsity.com Indifference Maps U2 U3 Leisure (hours per week) Consumption Good (units per week) U1 AB D Market basket A is preferred to B. Market basket B is preferred to D. docsity.com Indifference Curves U1U2 Leisure (hours per week) Consumption Good (units per week) A D B The consumer should be indifferent between A, B and D. However, B contains more of both goods than D. Indifference Curves Cannot Cross docsity.com Consumer Choice Budget Line U3 D Market basket D cannot be attained given the current budget constraint. PC = $1 W = $10 I = $1120 Leisure (hours per week) Consumption Good (units per week) 40 11220 100 600 1120 0 docsity.com Consumer Choice U2 Pc= $1 W = $10 I = $1120 Budget Line A At market basket A the budget line and the indifference curve are tangent and no higher level of satisfaction can be attained. At A: MRS =W/Pc = 10 Leisure (hours per week) Consumption Good (units per week) 40 11220 400 600 1120 0 docsity.com Corner Solution Consumption Good (units per week) Leisure (hours per week) B A U2 U3U1 docsity.com 4 Substitution Effect Consumption Good (units per week) Leisure (hours per week) U 1 docsity.com 5 Income Effects Consumption Good (units per week) Leisure (hours per week) U 1 U 2 11234 U 3 docsity.com Income and Substitution Effects Consumption Good (units per week) Leisure (hours per week) U 1 U 2 112 1120 1680 3224 A B 800 1320 Raise the wage from $10/hour to $15/hour and we move from A to B docsity.com An Individual Labor Supply Curve Can Bend Backward Wage wt bb... eee Individual Supply 0 . Desired Hours of Work docsity.com Fixed Costs of Work Leisure (hours per week) Consumption Good (units per week) 112 1120 0 1220 A B 60 98 At the original wage rate with fixed costs of working, worker choose A. Worker Requires Wage given by red budget line and to work 38 hours before working fixed costs docsity.com Elasticity of Labor Supply The elasticity of labor supply is: Typically we use hours to measure LS (% )/(% )i iLS Wε = Δ Δ docsity.com Rental Gradient Rent Travel time to work RA RB TA TB Suppose RA-RB=$8 Only people with W>$8 will move from B to A A B docsity.com Rental Gradient and Wages Leisure Consumption Good (16,Y) (16,Y-R0) (16-TA,Y-RA) (16-TB,Y-RB) UA slope = -W L* TAH* docsity.com Government Programs and Labor Supply Leisure Consumption Good UA UB C1 L1 A B M G E E’ F docsity.com 6 NIT –vs- EITC Leisure Consumption Good A B M |slope| = W NIT w/ large guarantee And high mtr EITC w/ no guarantee And negative mtr at low earnings |slope| > W |slope| < W docsity.com Earned Income Tax Credit (Unmarried, One Child), 2003 (dollars) 29,666 25,000 F 20,000 F 15,000 F 13,750 10,000 F 7,500 5,000 F 0 +— Hours of Work docsity.com Employer determined hours Leisure Consumption Good U0 L0 H0 Slope=-W0 docsity.com Employer determined hours Hours Costs H0 H1 I(H) Slope=W0 I(H)+FC Slope=W0+FC/Hour Slope=W1 docsity.com Employer determined hours Leisure Consumption Good U0 H1 (16-H1, I1=W1*H1) (16-H0, I0) Slope=-W0 U1 Slope=-W1 docsity.com Summary Large increases in female labor force participation in the last forty years. – 33% in 1950; 60% in 2002. – Most of the increase coming from young or prime age, married, educated white females. Decrease in male labor force participation – 86% in 1950; 75% in 2000. – Most of the decrease coming from the oldest and youngest workers docsity.com Summary Indifference curves show all combinations of two goods that are equally preferred. The slope of the indifference curve is the marginal rate of substitution. – Shows how an individual trades off the two goods while keeping the same level of utility. docsity.com Summary Along an indifference curve there is diminishing marginal rate of substitution. – The more of a good you have the less you value an additional unit of the good. Utility is maximized given the budget constraint when the marginal rate of substitution (slope of the indifference curve) is equal to the wage (slope of the budget line). docsity.com Summary When the wage rate changes we have two effects: substitution and income effects. The substitution effect is the change in consumption associated with a change in the price of the item, with the level of utility held constant. The income effect is the change in consumption brought about by the increase in purchasing power, with the price of the item held constant. docsity.com Summary Estimates of the elasticity of labor supply show: – Own wage elasticity is larger for women. – Difference is primarily due to the decision to start working—among those already working the own wage elasticity is similar for men and women. docsity.com Summary We can use our model of labor supply to study: – Employer determined hours of work – Why wealthier people live closer to the city center and why rents are higher in the city center. – The disincentive effects of transfer payments. docsity.com