Question

1. Explain the intuition behind the theoretical model of labor supply presented in the textbook. In other words, how does an individual decide whether or not to work for pay, and how many hours to devote to paid work? How can the model explain how married women's LFP might differ from single women's LFP? Be clear to distinguish Model Part One from Model Part Two

Answer 1

An individual's choice whether or not to work for pay can be found by the individua's labor -leisure choice that will maximise her utility.The person should compare in her mind whether she would prefer more income or more leisure.The person would move in the direction of her choice and try to find the utility maximizing choice on the labor leisure budget constraint.

A person 's choice of how many hours to work and income along the new budget constraint depends on the many alternatives before the person. One may be more hours of work and more income and less leisure , second may be work for 40 hrs and get higher income and no leisure,third may be more leisure and fourth may be more leisure and less work and less income. So the person can have more income and less leisure or a mixture of the two. The theoritical insight is that higher wages may cause people to work more hours,may sometimes cause not to change the number of hours worked,and sometimes cause hours of work to fall and the supply of labor curve will bend backward.

Married women's LPF has been drastically increasing compared to single women participation rate.The female labor force participation has declined since 2000 especially among single women.Since 2000, the percentage of single women has grown in US and so the impact is felt in the female participation rate.The overall increase in LFP rate is due to the upsurge of married women participation.Single women do not have to care for child and they are not counting on partner to provide for them.This explains reason for single women downturn.