Time Allocation, Labour Supply and Labour Markets

Time Allocation, Labour Supply and Labour Markets:

Simple Model of Time Allocation as well as Labour Supply:

1) Assumptions:

• Leisure time as a consumption good that is “purchased” by spending time not working.

• A worker forgoes wages in order to consume leisure as well as the cost of leisure is the amount of foregone wages.

• Specified the ultimate time constraint of 24 hours per day, market wages, and a consumer’s non labour income, we can construct a budget constraint that defines the consumer’s attainable combinations of purchased consumption goods and leisure.

2) Time Allocation Budget Line:

• To maintain a two-dimensional instance that we can graph we lump all purchased consumption goods together and give them a price index ( p ).

• Definitions of variables as well as parameters

C = purchased consumption goods,
p = price index for consumption goods
L = leisure, w= market hourly wage rate, V = non-labor income
H = 24 − L =hours of work

• Budget constraint

pC ≤V + w(24 − L)

1731_budget constraint.jpg

cf) Should (V / p) be always positive? If an individual has additional outstanding loans than savings, the interest on the loans would constitute a fixed cost before any consumption goods could be bought (ex) alimony and child support. If the budget equation is satisfied with equality when consumption is zero, leisure can be L = (24w + V)/w. The budget line will leave from the consumption intercept to the leisure intercept. Further leisure is unavailable because of the prior financial commitments.

3) Utility-maximizing choice of consumption and leisure: From the above budget equation, we get C= {(24w+V)/p} − (w/p)L

FOC for the utility maximization is dC/dL= −(w/p) (relative wage or real wage)

4) Mathematical treatment:

Max U(C, L) s.t. pC = V + w(24 − L) ⇒ L = U(C, L) +λ[w(24 − L) +V − pC]

From FOCs of the optimization problem,

834_FOC of optimization problem.jpg

5) Comparative Statics of a change in non-labor income Parallel shift of budget line ⇒ pure income effect (DIY!!) Empirically leisure is established to be a normal good.

Example:

  • Winning a lottery will change leisure choice
  • Change in pension benefit as well as retirement decision
  • Inheritance
  • Antipoverty policy and labor decision

Latest technology based Microeconomics Online Tutoring Assistance

Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Microeconomics help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Microeconomics, project ideas and tutorials. We provide email based Microeconomics help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Microeconomics. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Microeconomics Homework help and assignment help services. They use their experience, as they have solved thousands of the Microeconomics assignments, which may help you to solve your complex issues of Microeconomics. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.

©TutorsGlobe All rights reserved 2022-2023.