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Non-pecuniary Work Incentive and Labor Supply

  • Y. Hossein Farzin

    (University of California)

  • Ken-Ichi Akao

    (Waseda University)

Recognizing that people value employment not only to earn income to satisfy their consumption needs, but also as a means to gain socio-psychological (nonpecuniary) benefits, we show that once nonpecuniary work incentives are incorporated into standard labor supply theory, (i) the wage rate under-estimates (over-estimates) the true value of nonwork/leisure time when work has nonpecuniary benefits (costs), (ii) nonpecuniary benefits can be a substitute for monetary wages as work incentives, (iii) at very low wage rates, work can become a net source of utility, and (iii) the shape of labor supply curve differs from standard theory. We also identify conditions under which a greater nonpecuniary work incentive generates a larger individual labor supply, and examine the effects of non-wage income on labor supply both for paid and voluntary work.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.21.

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Date of creation: Feb 2006
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Handle: RePEc:fem:femwpa:2006.21
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