Assets, Subsistence, and the Supply Curve of Labor

Posted: 30 Aug 2012

See all articles by Yoram Barzel

Yoram Barzel

University of Washington

Richard James McDonald

affiliation not provided to SSRN

Date Written: September 1, 1973

Abstract

The "backward bending" supply curve of labor is now accepted as a matter of course by most economists. it has no doubt been perplexing to observe that most commonly employed types of utility functions do not yield such curves under the usual textbook analysis of the problem. Particular preference maps have been found that generate backward bending curves; however, they are nonparametric, leading to difficulties of estimation, and upon close examination seem to imply counter-intuitive results. We will show that taking into account the wealth position of an individual on the one hand and survival consideration on the other greatly expands the variety of shapes that can be derived for the supply curve from some simple utility functions. The use of a specific simple utility function also implies some severe restrictions on the form the supply curve can take, rendering it testable. Empirical evidence is shown to support the conclusion that the supply curve is monotonic. We will also show that the notion that the aggregate supply curve of labor slopes down rests, in part, on an error of aggregation, and that the empirical evidence usually cited in support of the negative slope, when correctly interpreted, cannot be so construed.

Suggested Citation

Barzel, Yoram and McDonald, Richard James, Assets, Subsistence, and the Supply Curve of Labor (September 1, 1973). American Economic Review, Vol. 63, No. 4, 1973, Available at SSRN: https://ssrn.com/abstract=2138506

Yoram Barzel (Contact Author)

University of Washington ( email )

Box 353330
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United States
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Richard James McDonald

affiliation not provided to SSRN ( email )

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