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Local price variation and labor supply behavior

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  • Dan A. Black
  • Natalia Kolesnikova
  • Lowell J. Taylor

Abstract

In standard economic theory, labor supply decisions depend on the complete set of prices: wages and the prices of relevant consumption goods. Nonetheless, most theoretical and empirical work in labor supply studies ignore prices other than wages. We address the question of whether the common practice of ignoring local price variation in labor supply studies is as innocuous as generally assumed. We describe a simple model to demonstrate that the effects of wage and nonlabor income on labor supply typically differ by location. In particular, we show that the derivative of the labor supply with respect to nonlabor income is independent of price only when the labor supply takes a form based on an implausible separability condition. Empirical evidence demonstrates that the effect of price on labor supply is not a simple "up-or-down shift" that would be required to meet the separability condition in our key proposition.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2009)
Issue (Month): Nov ()
Pages: 613-626

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Handle: RePEc:fip:fedlrv:y:2009:i:nov:p:613-626:n:v.91no.6

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Keywords: Labor supply ; Price levels;

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  1. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers, Institute for Fiscal Studies W98/18, Institute for Fiscal Studies.
  2. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
  3. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
  4. repec:fth:prinin:121 is not listed on IDEAS
  5. Stuart A. Gabriel & Stuart S. Rosenthal, 2004. "Quality of the Business Environment Versus Quality of Life: Do Firms and Households Like the Same Cities?," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 438-444, February.
  6. Abbott, Michael & Ashenfelter, Orley, 1976. "Labour Supply, Commodity Demand and the Allocation of Time," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 43(3), pages 389-411, October.
  7. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  8. Ashenfelter, Orley & Ham, John, 1979. "Education, Unemployment, and Earnings," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages S99-116, October.
  9. Haurin, Donald R, 1980. "The Regional Distribution of Population, Migration, and Climate," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 95(2), pages 293-308, September.
  10. Chen, Yong & Rosenthal, Stuart S., 2008. "Local amenities and life-cycle migration: Do people move for jobs or fun?," Journal of Urban Economics, Elsevier, vol. 64(3), pages 519-537, November.
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Cited by:
  1. Winters, John V, 2010. "Human Capital Externalities and Employment Differences across Metropolitan Areas of the U.S," MPRA Paper 22434, University Library of Munich, Germany.
  2. Black, Dan A. & Kolesnikova, Natalia & Taylor, Lowell J., 2014. "Why do so few women work in New York (and so many in Minneapolis)? Labor supply of married women across US cities," Journal of Urban Economics, Elsevier, vol. 79(C), pages 59-71.

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