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Behavioral Economics For Dummies® by Morris Altman, PhD

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Chapter 11

Labor Supply in the Real World

In This Chapter

arrow Understanding the meaning of labor supply

arrow Investigating the conventional model of labor supply

arrow Introducing behavioral and social determinants of labor supply

The conventional thinking is that people will supply more labor to the labor market as wages increase from relatively low levels. But conventional economics assumes that people prefer leisure to work and will drop out of the labor force when wages rise sufficiently or when they get income from government when they aren’t working. So, for example, unemployment insurance or social benefits like welfare are thought to reduce the workforce because they provide potential workers with the capacity to enjoy a life of leisure.

In this chapter, I discuss an alternative view — one that finds that participation in the labor market is driven by a much more complex set of factors than economic incentives.

An Introduction to Labor Supply

Before capturing the essence of the conventional economics perspective on labor supply, I want to explain what exactly is meant by that term. I also want to give you a sense of what has happened to labor supply over time. Finally, I want to fill you ...

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