Bài giảng Labour Market Economics - Chapter 4 Labour Supply Over the Life-Cycle

Labour Supply Over the Life-cycleChapter Four Created by: Erica Morrill, M.Ed Fanshawe CollegeChapter 4-1© 2002 McGraw-Hill Ryerson Ltd.Chapter Focus Labour supply patternsLifetime planning and wage elasticity Labour supply over the lifetimeFertility and women’s labour supply decisionsRetirement 2© 2002 McGraw-Hill Ryerson Ltd.Figure 4.1 Labour Force Participation ProfilesMenparticipation increases in twentiespeak at 30-50declining at retirement ageparticipation of older men has declined since 19713© 2002 McGraw-Hill Ryerson Ltd.Figure 4.1 Labour Force Participation RatesWomendata more complicated to interpretsociety/economic factors influence women’s participation ratesgenerally shaped like men’s participationslower entry into labour markethas been rising since 19714© 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)5© 2002 McGraw-Hill Ryerson Ltd.Dynamic Life Cycle ModelBasic Assumptions:preferences over consumption and leisure today and in the futuremaximize utility function optimize consumption an leisure in each period of time given expected lifetime budget constraint6© 2002 McGraw-Hill Ryerson Ltd.Figure 4.2 Dynamic Life Cycle Wage ChangesTwo profilesIllustrates how wages first increase and then decline“blip” represents a temporary one-time wage increase at t7© 2002 McGraw-Hill Ryerson Ltd.The Dynamic Life Cycle Model in ContextSubstitution and income effects differ depending on permanent or temporary wage changeanticipated or unanticipated wage changeLabour supply response will differ depending on the source of the wage increase8© 2002 McGraw-Hill Ryerson Ltd.Figure 4.2 Dynamic Life Cycle Wage ChangesA  B Permanent wage difference B C Evolutionary wage change associated with agingC D Evolutionary wage change associated with aging9© 2002 McGraw-Hill Ryerson Ltd.Fertility and ChildbearingImportant in understanding women’s labour supply Variables affecting fertility decisionincomecost of childprice of related goodstastes and preferencestechnology advances consumption vs. nonmarket time10© 2002 McGraw-Hill Ryerson Ltd.IncomePositive relationship between income and the desired number of childrenContraceptive knowledge and the cost of having children tend to be related to the income variableDifficult to separate the pure effect income on decision11© 2002 McGraw-Hill Ryerson Ltd.Price and Cost of ChildrenThe demand for children is negatively related to the price or cost of having childrenThe main cost is income foregone by spouse potential earnings can have both an income and substitution effect on decision to have children12© 2002 McGraw-Hill Ryerson Ltd.Price of Related GoodsDramatic changes in private costs can impact the decision to have childrenA rise in the price of complementary goods would reduce desired number of childrenFall in price (public subsidies) could encourage larger family sizes13© 2002 McGraw-Hill Ryerson Ltd.Retirement Decisions and PensionsAn area of increasing concernRetirement could imply:leaving the labour forcereducing hours workedmoving to a less difficult jobImpacts social policyConcerns of solvency of pension funds14© 2002 McGraw-Hill Ryerson Ltd.RetirementTheoretical Determinants of Retirementmandatory agewealth and earningshealth and the nature of work and the familypension plans15© 2002 McGraw-Hill Ryerson Ltd.Figure 4.3 a No Retirement TestYMYBEPEOBTNo Retirement Test(retirement)16© 2002 McGraw-Hill Ryerson Ltd.Figure 4.3 b No Retirement TestYMYBBTFull Retirement(retirement)0Y17© 2002 McGraw-Hill Ryerson Ltd.Figure 4.3 c No Retirement TestYMYBBTPartial Retirement Test(retirement)0YCDCdYBYB18© 2002 McGraw-Hill Ryerson Ltd.Employer-Sponsored Pension PlanEarnings Based Plans 3/4 of workersFlat Benefit Plans 18% of workersDefined Contribution Plans 9% of workersDefined Benefit Plans19© 2002 McGraw-Hill Ryerson Ltd.Defined Benefit PlansInfluences retirement decisionEncourages early retirementDiscourages postponed retirement20© 2002 McGraw-Hill Ryerson Ltd.Figure 4.4 Pension Benefit Accruals21© 2002 McGraw-Hill Ryerson Ltd.FeaturesBackloadingEarly/special retirement provisionsPostponed retirement provisions22© 2002 McGraw-Hill Ryerson Ltd.BackloadingBenefits get larger as seniority-based wage increases Young workers have an incentive to stay with the firmOlder workers have an incentive not to retire too soon23© 2002 McGraw-Hill Ryerson Ltd.End of Chapter Four24© 2002 McGraw-Hill Ryerson Ltd.