A Behavioral Model of Labor Supply: Casting Some Light Into the Black Box of Income-Leisure Choice

Abstract:     
The economics of labor supply, a basic building block of economic theory, cannot provide any substantive analytical predictions on the course of labor supply by an individual or a group. This is largely due to the absence, in the theory of income-leisure choice, of any consequential behavioral content which speaks to existing and changing preferences of individuals and to the differences in preferences across individuals. Introducing a discussion of preferences into the argument, in particular target real income and target nonmarket time, provides for a richer model of labor supply and for a more precise set analytical predictions with important public policy implications.

Keywords: Labor supply, Preferences, Target income, Leisure preference, hierarchy of needs

JEL Classification: D10, J22, N30

Accepted Paper Series