4.3. Elasticities of supply Same idea as before, but now on the supply side The elasticity of the supply of labor: ES L = ∆%L / ∆%W > 0 but also… All over the curve E could be = 0 (perfectly inelastic), = ∞ (perfectly elastic), 1, < 0 Changes over the curve do not imply shifts of the curve The supply curve will shift, basically, due to : 1) ∆Y NL 2) ∆ map of IC (L-l)

4.4. Non-participation, reservation wage, etc. The “non-participation” scenario: ICs with steep slope (high MRS) ∆Y NL BC “very flat” (low wages  slope) As before  Max. U; but out of LF (all t goes to leisure)  for all the graphic, slope of ICs are steeper than BC’s (i values leisure more) Reservation wage: highest wage at which i chooses NOT to work (or lowest wage at which i decides to work)

4.4. Non-participation, reservation wage, etc. Summing up: Those i allocating higher U to education & training, child care, etc.  more prone to be outside of the LF The same for those receiving Y NL (from parents, spouse, social services, pensions, etc.) The higher the opportunity cost of remaining idle (higher w), the more probable that the i will be in the LF

4.5. Becker’s model Extension of basic model where i used t only for L-l The model adds two new features: 1.Perspective of family  more informative 2.Multiples uses of t  L, L h, l The FU produces “commodities” which yield U, combining goods and services with t t then is used for: 1) L that generates $ to buy goods and services, 2) in “family production” and 3) consumption Commodities will be time-intensive or good-intensive, and they will be substitutes

4.5. Becker’s model What do families decide? 1.What commodities to consume? 2.How? 3.How will the FU distribute t among its members ( L, L h & l) ? Point 3 can be thought out in terms or comparative advantages that come with age, sex, education, experience, natural skills, etc. Albeit a bit different, here we also have income & substitution effects: Substitution effect: ∆L due to ∆w with Y  > 0 Income effect: ∆L due to ∆Y with w  < 0

4.6. Cyclical changes in the workforce Introduction: Why has the PR(M) fallen during the XX century? 1.Higher incomes and wages 2.Social security and private pensions 3.Social security  “very generous” and progressive 4.Life cycle Why has the PR(F) increased? 1.Higher w rates 2.Change in preferences 3.Higher productivity of families 4.Drop in birth rates 5.More divorces 6.Improved access to job opportunities (e.g. part-time) 7.To maintain a high standard of living

4.6. Cyclical changes in the workforce Cyclical changes: Ex. a member of the FU loses his job  the net effect on the PR will depend on two effects: Additional worker effect: other members will seek jobs to compensate for the loss (income effect) Discouraged worker effect: unemployed workers become pessimistic  stigmatization (substitution effect) Effects with opposing forces  empirically the substitution effect is stronger  PR & unemployment move in opposite direction