W hen you walk into a store, you are confronted with thousands of goods that
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- Income Effects on Labor Supply: Historical Trends, Lottery Winners, and the Carnegie Conjecture
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CHAPTER 21 the theOrY OF CONSUMer ChOICe 453 and work more, so the labor-supply curve slopes upward. In panel (b), a higher wage induces Carrie to enjoy more leisure and work less, so the labor-supply curve slopes “backward.” At first, the backward-sloping labor-supply curve is puzzling. Why would a person respond to a higher wage by working less? The answer comes from con- sidering the income and substitution effects of a higher wage. Consider first the substitution effect. When Carrie’s wage rises, leisure becomes more costly relative to consumption, and this encourages Carrie to substitute away from leisure and toward consumption. In other words, the substitution effect induces Carrie to work more in response to higher wages, which tends to make the labor-supply curve slope upward. Now consider the income effect. When Carrie’s wage rises, she moves to a higher indifference curve. She is now better off than she was. As long as consump- tion and leisure are both normal goods, she tends to want to use this increase in well-being to enjoy both higher consumption and greater leisure. In other words, the income effect induces her to work less, which tends to make the labor-supply curve slope backward. In the end, economic theory does not give a clear prediction about whether an increase in the wage induces Carrie to work more or less. If the substitution effect is greater than the income effect for Carrie, she works more. If the income effect is greater than the substitution effect, she works less. The labor-supply curve, there- fore, could be either upward or backward sloping. Income Effects on Labor Supply: Historical Trends, Lottery Winners, and the Carnegie Conjecture The idea of a backward-sloping labor-supply curve might at first seem like a mere theoretical curiosity, but in fact it is not. Evidence indicates that the labor-supply curve, considered over long periods, does in fact slope back- ward. A hundred years ago, many people worked six days a week. Today, five-day workweeks are the norm. At the same time that the length of the workweek has been falling, the wage of the typical worker (adjusted for inflation) has been rising. Here is how economists explain this historical pattern: Over time, advances in technology raise workers’ productivity and, thereby, the demand for labor. This increase in labor demand raises equilibrium wages. As wages rise, so does the re- ward for working. Yet rather than responding to this increased incentive by work- ing more, most workers choose to take part of their greater prosperity in the form of more leisure. In other words, the income effect of higher wages dominates the substitution effect. Further evidence that the income effect on labor supply is strong comes from a very different kind of data: winners of lotteries. Winners of large prizes in the lottery see large increases in their incomes and, as a result, large outward shifts in their budget constraints. Because the winners’ wages have not changed, however, the slopes of their budget constraints remain the same. There is, therefore, no sub- stitution effect. By examining the behavior of lottery winners, we can isolate the income effect on labor supply. The results from studies of lottery winners are striking. Of those winners who win more than $50,000, almost 25 percent quit working within a year and another 9 percent reduce the number of hours they work. Of those winners who win more than $1 million, almost 40 percent stop working. The income effect on labor sup- ply of winning such a large prize is substantial. tải về 1.28 Mb. Chia sẻ với bạn bè của bạn:
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