IRE339H1 Lecture 2: Labour Supply
10 Oct 2016
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Lecture 2 labour supply: income-leisure choice model. Objective is to determine the optimal number of hours an ee wants to work, given an hourly wage rate and his/her individual preferences for work and leisure, i. e. supply of labour by the individual. T(cid:449)o aspe(cid:272)ts to a(cid:374) i(cid:374)di(cid:448)idual"s la(cid:271)ou(cid:396) supply of la(cid:271)ou(cid:396): 1. Labour force participation, i. e. whether the person is in the labour force or not: 2. The number of hours that the person wants to work each week, given that s/he is participating in the labour force. Both of these decisions will be analyzed using the income-leisure model. Income (y): all the goods and services that the ee can consume with income earned by working. (i. e. real income) Budget line: all combinations of y and l available to the ee, given a fixed number of hours and wage rate. Budget line is a downward sloping straight line since consuming more leisure.
