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

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DOI: 10.4236/tel.2016.64079    991 Downloads   1,165 Views  


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.

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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.


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