Share This Article:

Labor-Leisure Choice: Is Everything as Straightforward as One Might Have Thought?

Full-Text HTML XML Download Download as PDF (Size:415KB) PP. 750-760
DOI: 10.4236/tel.2016.64079    991 Downloads   1,165 Views  

ABSTRACT

We argue that a full understanding of a rational labor supply choice in a standard dynamic life cycle framework is obscure, despite the framework’s being seemingly self-explanatory, straight-forward, and intuitively sensible. In a completely friction-free environment, we, to our knowledge, are the first to provide a complete analytic solution to the benchmark model that presumes a kind of labor supply behavior that is typically taken as the standard in economic studies. We find that such standard behavior holds only for a narrow set of parameters. For many alternative parameterizations, the labor supply behavior of a rational agent is either highly unrealistic, or extremely hard to predict and interpret. A complete understanding of a rational, intertemporal labor supply choice requires further analysis.

Cite this paper

Gahramanov, E. and Tang, X. (2016) Labor-Leisure Choice: Is Everything as Straightforward as One Might Have Thought?. Theoretical Economics Letters, 6, 750-760. doi: 10.4236/tel.2016.64079.

References

[1] Heckman, J. (1974) Life Cycle Consumption and Labor Supply: An Explanation of the Relationship between Income and Consumption over the Life Cycle. American Economic Review, 64, 188-194.
[2] Bütler, M. (2001) Neoclassical Life-cycle Consumption: A Textbook Example. Economic Theory, 17, 209-221.
http://dx.doi.org/10.1007/PL00004098
[3] Dunn, L. (1996) Loss Aversion and Adaptation in the Labor Market: Empirical Indifference Functions and Labor Supply. Review of Economics and Statistics, 78, 441-450.
http://dx.doi.org/10.2307/2109791
[4] Camerer, C., Babcock, L., Loewenstein, G. and Thaler, R. (1997) Labor Supply of New York City Cabdrivers: One Day at a Time. Quarterly Journal of Economics, 112, 407-441.
http://dx.doi.org/10.1162/003355397555244
[5] Colonna, F. and Marcassa, S. (2015) Taxation and Female Labor Supply in Italy. IZA Journal of Labor Policy, 4, 1-29.
http://dx.doi.org/10.1186/s40173-015-0030-0
[6] Gregory, J. and Lin, C. (1992) Constrained Optimization in the Calculus of Variations and Optimal Control Theory. Chapman & Hall, London.
[7] Angeletos, G.-M., Laibson, D., Repetto, A., Tobacman, J. and Weinberg, S. (2001) The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation. Journal of Economic Perspectives, 15, 47-68.
http://dx.doi.org/10.1257/jep.15.3.47
[8] Barro, R. and Sala-i-Martin, X. (2004) Economic Growth. The MIT Press, Cambridge, MA.
[9] Boeri, T. and Burda, M. (1996) Active Labor Market Policies, Job Matching and the Czech Miracle. European Economic Review, 40, 805-817.
http://dx.doi.org/10.1016/0014-2921(95)00091-7
[10] Ronsen, M. and Sundstrom, M. (1996) Maternal Employment in Scandinavia: A Comparison of the After-Birth Employment Activity of Norwegian and Swedish Women. Journal of Population Economics, 9, 267-285.
http://dx.doi.org/10.1007/BF00176688
[11] Wanberg, C., Kanfer, R. and Rotundo, M. (1999) Unemployed Individuals: Motives, Job-Search Competencies, and Job-Search Constraints as Predictors of Job Seeking and Reemployment. Journal of Applied Psychology, 84, 897-910.
http://dx.doi.org/10.1037/0021-9010.84.6.897
[12] Taniguchi, H. and Rosenfeld, R. (2002) Women’s Employment Exit and Reentry: Differences among Whites, Blacks, and Hispanics. Social Science Research, 31, 432-471.
http://dx.doi.org/10.1016/S0049-089X(02)00009-1
[13] Graversen B. and van Ours, J. (2008) Activating Unemployed Workers Works: Experimental Evidence from Denmark. Economics Letters, 100, 308-310.
http://dx.doi.org/10.1016/j.econlet.2008.02.016
[14] Vandeweyer, J. and Glorieux, I. (2008) Men Taking Up Career Leave: An Opportunity for a Better Work and Family Life Balance? Journal of Social Policy, 37, 271-294.
http://dx.doi.org/10.1017/S0047279407001742
[15] Tatsiramos, K. (2010) Job Displacement and the Transitions to Re-employment and Early Retirement for Non-Employed Older Workers. European Economic Review, 54, 517-535.
http://dx.doi.org/10.1016/j.euroecorev.2009.10.001
[16] Messe, P. (2011) Taxation of Early Retirement Windows and Delaying Retirement: The French Experience. Economic Modelling, 28, 2319-2341.
http://dx.doi.org/10.1016/j.econmod.2011.04.010
[17] Chen, J., Shao, X., Murtaza, G. and Zhao, Z. (2014) Factors That Influence Female Labor Force Supply in China. Economic Modelling, 37, 485-491.
http://dx.doi.org/10.1016/j.econmod.2013.11.043
[18] Cassou, S., Gorostiaga, A. and Uribe-Zubiaga, I. (2013) Policy Effects of the Elasticity of Substitution across Labor Types in Life Cycle Models. Economic Modelling, 35, 59-70.
http://dx.doi.org/10.1016/j.econmod.2013.06.021
[19] Koka, K. and Kosempel, S. (2014) A Life-Cycle Analysis of Ending Mandatory Retirement. Economic Modelling, 38, 57-66.
http://dx.doi.org/10.1016/j.econmod.2013.11.042
[20] Bullard, J. and Feigenbaum, J. (2007) A Leisurely Reading of the Life-Cycle Consumption Data. Journal of Monetary Economics, 54, 2305-2320.
http://dx.doi.org/10.1016/j.jmoneco.2007.06.025
[21] Fuster, L., Imrohoroglu, A. and Imrohoroglu, S. (2008) Altruism, Incomplete Markets, and Tax Reform. Journal of Monetary Economics, 55, 65-90.
http://dx.doi.org/10.1016/j.jmoneco.2007.10.004
[22] Gahramanov, E. and Tang, X. (2013) Should We Refinance Unfunded Social Security? Economica, 80, 532-565.
http://dx.doi.org/10.1111/ecca.12023
[23] Feigenbaum, J. (2008) Can Mortality Risk Explain the Consumption Hump? Journal of Macroeconomics, 30, 844-872.
http://dx.doi.org/10.1016/j.jmacro.2007.08.010
[24] Caliendo, F. and Gahramanov, E. (2009) Hunting the Unobservables for Optimal Social Security: A General Equilibrium Approach. Public Finance Review, 37, 470-502.
http://dx.doi.org/10.1177/1091142109332053
[25] Caliendo, F. and Gahramanov, E. (2013) Myopia and Pensions in General Equilibrium. Journal of Economics and Finance, 37, 375-401.
http://dx.doi.org/10.1007/s12197-011-9187-6
[26] Bagchi, S. (2011) Demographic Shocks, Retirement Decisions and Optimal Social Security. Doctoral Thesis, Utah State University, Logan.
[27] Gourinchas, P.-O. and Parker, J. (2002) Consumption over the Life Cycle. Econometrica, 70, 47-89.
http://dx.doi.org/10.1111/1468-0262.00269
[28] Feigenbaum, J. (2007) Precautionary Saving Unfettered. Working Paper, University of Pittsburgh, Pittsburgh.
[29] Attanasio, O. (1999) Consumption. In: Taylor, J.B. and Woodford, M., Eds., Handbook of Macroeconomics, 1B, North-Holland, Amsterdam, 741-812.
[30] Patterson, M. and Rao, A. (2014) GPOPS-II: A MATLAB Software for Solving Multiple-Phase Optimal Control Problems Using hp-Adaptive Gaussian Quadrature Collocation Methods and Sparse Nonlinear Programming. ACM Transactions on Mathematical Software, 41, Article No. 1.
http://dx.doi.org/10.1145/2558904

  
comments powered by Disqus

Copyright © 2017 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.