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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.

Suggested Citation

  • 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
    DOI: 10.1111/j.1467-999X.2009.04086.x
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    References listed on IDEAS

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    1. Dessing, Maryke, 2002. "Labor supply, the family and poverty: the S-shaped labor supply curve," Journal of Economic Behavior & Organization, Elsevier, vol. 49(4), pages 433-458, December.
    2. John W. Mellor, 1963. "The Use and Productivity of Farm Family Labor in Early Stages of Agricultural Development," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 45(3), pages 517-534.
    3. Elliot J. Berg, 1961. "Backward-Sloping Labor Supply Functions in Dual Economies — the Africa Case," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(3), pages 468-492.
    4. Dunn, L F, 1978. "An Empirical Indifference Function for Income and Leisure," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 533-540, November.
    5. Maryke Dessing, 2008. "The S‐shaped labor supply schedule: evidence from industrialized countries," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 35(6), pages 444-485, October.
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    Cited by:

    1. Ranjini L. Thaver, 2013. "Integrating The Output And Substitution Effects Of Production Into The Intermediate Microeconomics Textbook," Business Education and Accreditation, The Institute for Business and Finance Research, vol. 5(1), pages 81-90.

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