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A Complete Characterization Of The Inverted S-Shaped Labor Supply Curve

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  • Tamotsu Nakamura
  • Yu Murayama

Abstract

Empirical evidence suggests that labor supply curves are downward sloping at low wage levels, i.e. 'forward-falling labor supply'. In contrast, the supply curve is only downward sloping at high wage levels in the canonical labor supply model, i.e. 'backward-bending'. This paper derives a labor supply curve with both forward-falling and backward-bending segments, or an 'inverted S-shape' by incorporating two elements into a standard utility function: a subsistence level of consumption and a decreasing elasticity of substitution. It is also shown that the subsistence level of consumption plays a key role in determining the shape of the labor supply curve. Copyright © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd.

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  • Tamotsu Nakamura & Yu Murayama, 2010. "A Complete Characterization Of The Inverted S-Shaped Labor Supply Curve," Metroeconomica, Wiley Blackwell, vol. 61(4), pages 665-675, November.
  • Handle: RePEc:bla:metroe:v:61:y:2010:i:4:p:665-675
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