Addison Wesley Longman, Inc. © 2000 Chapter 7 Labor Supply: Household Production, the Family, and the Life Cycle

Addison Wesley Longman, Inc. © 2000 The Production of Child CareFigure 7.1

Addison Wesley Longman, Inc. © 2000 Large vs. Small Substitution Effects Attendant to a Wage IncreaseFigure 7.2

Addison Wesley Longman, Inc. © 2000 Household Productivity Can Change over the Life CycleFigure 7.4

Addison Wesley Longman, Inc. © 2000 Household Decisions Compare wages between spouses Compare home productivity Comparative advantage Social norms, utility Bargaining, future security Are spouses’ work subs or complements? –As she works more, does he work more or less?

Addison Wesley Longman, Inc. © 2000 When Income Rises When Income rises, what happens to labor leisure decision? What happens to home production decision? Remember there are income and substitution effects. – Which will dominate? –How does a person’s life cycle affect your answer?

Addison Wesley Longman, Inc. © 2000 Choice of Optimum Retirement Age for Hypothetical Male Worker (based on data in Table 7.2) Figure 7.6

Addison Wesley Longman, Inc. © 2000 Recessions Added worker effect: Spouse loses job, now the other must work Discouraged worker effect: wages drop, chance of finding work drops, stop looking Unemployment can rise or fall In the real world: discouraged worker effect dominates. Labor force shrinks. Unemployment rate underestimates truth

Addison Wesley Longman, Inc. © 2000 Budget Constraints Facing a Single Parent Before and After Child Support Assurance Program Adopted Figure 7.7

Addison Wesley Longman, Inc. © 2000 A Single Parent Who Joins the Labor Force After Child Support Assurance Program Adopted Figure 7.8