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Chapter 19 / Labor Supply

19.1 The Tradeoff between Leisure and Consumption

Perhaps the most fundamental “good” everyone is “endowed” with is their own time. Each day, we face competing demands on our time from work, or school, or family; what is left over is time we have to ourselves. If economics is the study of tradeoffs, the tradeoff of how we allocate our time is surely one of the most basic.

In the spirit of making simplifying assumptions, we will analyze a model in this chapter in which there are two uses for time: “labor” and “leisure.” We’ll assume that leisure is pleasurable in its own right, while labor is used to get the other things we enjoy. For this reason we won’t think of a “leisure-labor” tradeoff as much as a “leisure-consumption” tradeoff: that is, the two “goods” we will be interested in are leisure (good 1) and consumption (good 2), but we’ll assume that through working we can increase our consumption of things we like.

There are many ways that labor is transformed into consumption: some people make things themselves, grow food in a garden, or run their own business. However, one common way to transform labor into consumption is to work to earn money, and then use that money to buy the things you want.

There is a broad class of economic models that analyze these kinds of labor-for-money contracts, and the field of labor economics is rich with realistic models capturing a wide range of employment behavior. In this chapter we will focus on a simple (and not very realistic) model of voluntary labor supply, in which a worker has a job that offers them an hourly wage, but allows them to choose how many hours to work at that wage. An increasingly prevalent example of this is “gig workers” like Uber or Lyft drivers, who can (at least theoretically) set their own hours.

Next: Wages and the Budget Constraint
Copyright (c) Christopher Makler /