2004 LaborEconomics

• (Cahuc & Zylberberg, 2004) ⇒ Pierre Cahuc, and André Zylberberg. (2004). “Labor Economics.” MIT Press. ISBN:9780262033169

Subject Headings: Labor Economics, Modern Labor Economics.

Notes

• Chapter 1 can be found here https://mitpress.mit.edu/sites/default/files/titles/content/9780262033169_sch_0001.pdf

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• http://scholar.google.com/scholar?q=%222004%22+Labor+Economics

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Abstract

This landmark graduate-level text combines depth and breadth of coverage with recent, cutting-edge work in all the major areas of modern labor economics. Labor Economics is the only textbook available for advanced graduate students in the field, and it will be widely used; because of its command of the literature and the freshness of the material included, it will also prove to be a valuable resource for practicing labor economists. The book moves back and forth between factual data and theoretical reasoning. The space devoted to theory reflects the profound theoretical restructuring in the field that has taken place in the last thirty years; the authors present these developments within a unified pedagogic framework. The teaching methods are based on mathematical models, with the mathematical analyses laid out clearly, and the derivation of most results given in five mathematical appendixes that provide a toolkit for understanding the models. The book is divided into four parts: “Supply and Demand Behaviors” examines the determinants of labor supply and demand; “Wage Formation” discusses wage determinants, including the influences of the wage policies of firms and collective bargaining; "Unemployment and Inequality " considers these problems in a macroeconomic setting; and “Institutions and Economic Policy” treats labor market policies and the impact of institutions on labor market performance.

Ch. 1 - Labor Supply (p.3)

https://mitpress.mit.edu/sites/default/files/titles/content/9780262033169_sch_0001.pdf

To hold a paid job, you must first have decided to do so. This is the starting point of the so-called "neoclassical" theory of the labor supply. It posits that each individual disposes of a limited amount of time, which he or she chooses to allocate between paid work and leisure. Evidently the wage an individual can demand constitutes an important factor in the choice of the quality of labor supplied. But it is not the only factor taken into account. Personal wealth, income derived from sources outside the labor market, and even the familial environment also play a decisive role.

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1.3 Summary and Conclusion

• According to the neoclassical theory of labor supply, every individual trades off between consuming a good and consuming leisure. The supply of individual labor is positive if the current wage exceeds the reservation wage, which depends on preferences and non-wage income. If labor supply is positive, the marginal rate of substitution between consumption and leisure is equal to the hourly wage.
• The relation between the individual supply of labor and the hourly wage is the result of combined substitution and income effects. The substitution effect implies an increasing relation between the wage and labor supply, while the income effect works in the opposite direction if leisure is a normal good. The supply of labor generally rises with the wage at low wage levels (the substitution effect prevails) and falls off when the wage reaches higher levels (the income effect prevails).
• In the neoclassical theory of labor supply, the labor force participation rate corresponds to the proportion of individuals whose reservation wage isthe current wage. The fact that hours of work are offered to agents in indivisible blocks implies that the elasticity of the aggregate supply of labor may be very different from that of the individual supply of the majority of workers.
• When an individual has the opportunity to devote a part of his or her endowment of time to household production, at the optimum, the hourly wage is equal to the marginal productivity of household work. Household production increases the elasticity of the individual supply of wage work.
• As a general rule, the mechanism of substitution of leisure over time implies that the permanent component of the evolution of real wages has a feeble effect on labor supply, whereas the transitory component affects this variable more strongly.
• The elasticity of labor supply by women is, in general, greater than that of men, which is small. Moreover, variations in the total number of hours worked in an economy flow principally from variations in participation rather than from variations in hours worked by individuals.
• The methodology of natural experiments confirms the results of more traditional econometric studies, showing that financial incentives significantly influence labor supply by women. Labor Supply 51
• Finally, the neoclassical theory of labor supply permits the explanation of certain characteristics of long-term tendencies in amount of time worked and male and female participation rates.

Overall, the theory of labor supply sheds much light, often in agreement with empirical observations, on the manner in which agents decide how long to be active as wage-earners. It does not, however, allow us to understand why there should be unemployed people looking for work, since this category of the population has no reason to exist in a universe where information is perfect. The theory of the job search abandons the hypothesis of such a universe and succeeds in explaining the simultaneous presence of unemployed people and nonparticipants. It marks an important advance in the analysis of the functioning of the labor market, and forms the subject of the chapter 3. …

References

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	Author	volume	Date Value	title	type	journal	titleUrl	doi	note	year
2004 LaborEconomics	Pierre Cahuc André Zylberberg			Labor Economics						2004