A backward-bending labor supply curve without an income effect
AbstractThis paper proposes an explanation of the backward-bending labor supply curve that is not based on the premise that the income effect dominates the substitution effect. Unlike the classical labor supply theory that treats working hours and work effort as being synonymous, this paper treats them as distinct variables in an efficiency wage model. A wage rate increase is shown to give rise to two direct substitution effects that motivate the worker to provide more effort and hours. When a greater effort exerts a cross substitution effect that reduces hours, the hour supply curve may bend backward in the absence of an income effect. Copyright 2003, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 55 (2003)
Issue (Month): 2 (April)
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"The Evolution of Inflation and Unemployment: Explaining the Roaring Nineties,"
604, Queen Mary, University of London, School of Economics and Finance.
- Marika Karanassou & Hector Sala & Dennis J. Snower, 2008. "The Evolution Of Inflation And Unemployment: Explaining The Roaring Nineties," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 334-354, December.
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- Dan Usher, 2013. "Two Sources of Bias in Estimating the Peak of the Laffer Curve," Working Papers 1320, Queen's University, Department of Economics.
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