UCSD ECON 139 - ECON 139 Set 3 (15 pages)

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ECON 139 Set 3

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ECON 139 Set 3


Lecture number:
Lecture Note
University of California, San Diego
Econ 139 - Labor Economics

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ECON 139 SP 15 Antonovics 3 4 14 15 1 April 2nd 2013 April 14 2015 Last part of Labor Supply Labor Supply Over the Life Cycle Static model of Chapter 2 is not a complete depiction of how we allocate our time We want to consider how individuals make labor supply decisions over their lifetimes Wage rates change over the worker s life cycle in a predictable way Wages are low when young Wages rise with time and peak around age 50 Wages decline or remain stable after the age of 50 Changes in wages over the life cycle are evolutionary Responses to Evolutionary Wage Changes Evolutionary wage changes are predictable cuz we know in ten years our wage is gonna go up don t lead to a change in expected life income cuz you know they are happening no income effect associated with them just substitution effect In life cycle model hours of work increase when wages are higher The profile of hours of work over the life cycle will have the same shape as the age earnings profile Intertemporal substitution hypothesis people substitute their time over he life cycle to take advantage of changes in the price of leisure The Life Cycle Path of Wages and Hours for a Typical Worker Contrast with Static Model of Labor Supply the distinct between predictable changes in wage v s unexpected change In a life cycle model wage changes are predictable and do not increase a worker s opportunity set The two models complement rather than contradict each other Case 1 SE IE Case 2 IE SE Compare Professor Antonovics and Bill Gates If IE dominates Bill Gates is working less at every age level If SE dominates Bill Gats is working more at every age level Labor Force Participation Rates over the Life Cycle 2005 Inverted U shape of 15 Hours of Work Over the Life Cycle 2005 Around age 45 50 you can see them hitting the peak and then decline Policy Application LFP of Older Workers No need for this slide Labor Demand Labor Demand A firm s decision about how much labor to use in production is driven by the firm s

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