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Chapter 4 - Labour supply over the life-cycle. The topics discussed in this chapter are: Labour supply patterns, lifetime planning and wage elasticity, labour supply over the lifetime, fertility and women’s labour supply decisions, retirement. | Labour Supply Over the Life-cycle Chapter Four Created by: Erica Morrill, M.Ed Fanshawe College © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus Labour supply patterns Lifetime planning and wage elasticity Labour supply over the lifetime Fertility and women’s labour supply decisions Retirement Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. Figure 4.1 Labour Force Participation Profiles Men participation increases in twenties peak at 30-50 declining at retirement age participation of older men has declined since 1971 Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. Figure 4.1 Labour Force Participation Rates Women data more complicated to interpret society/economic factors influence women’s participation rates generally shaped like men’s participation slower entry into labour market has been rising since 1971 Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. Dynamic Life Cycle Models A model based on the assumption that individuals plan out their lifetime supply of labour given their expected | Labour Supply Over the Life-cycle Chapter Four Created by: Erica Morrill, M.Ed Fanshawe College © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus Labour supply patterns Lifetime planning and wage elasticity Labour supply over the lifetime Fertility and women’s labour supply decisions Retirement Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. Figure 4.1 Labour Force Participation Profiles Men participation increases in twenties peak at 30-50 declining at retirement age participation of older men has declined since 1971 Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. Figure 4.1 Labour Force Participation Rates Women data more complicated to interpret society/economic factors influence women’s participation rates generally shaped like men’s participation slower entry into labour market has been rising since 1971 Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. Dynamic Life Cycle Models A model based on the assumption that individuals plan out their lifetime supply of labour given their expected economic environment (specifically wages and other income) Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. Dynamic Life Cycle Model Basic Assumptions: preferences over consumption and leisure today and in the future maximize utility function optimize consumption an leisure in each period of time given expected lifetime budget constraint Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. Figure 4.2 Dynamic Life Cycle Wage Changes Two profiles Illustrates how wages first increase and then decline “blip” represents a temporary one-time wage increase at t Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. The Dynamic Life Cycle Model in Context Substitution and income effects differ depending on permanent or temporary wage change anticipated or unanticipated wage change Labour supply response will differ depending on the source of the wage increase Chapter 4- © 2002 McGraw-Hill Ryerson Ltd. Figure 4.2 Dynamic Life Cycle Wage Changes A B Permanent wage difference B C Evolutionary wage change
