Economic Growth and the High Wage Economy

13 When wants are insatiable

A target income theory of labor supply

Introduction

A basic building block of microeconomic theory is the economics of labor supply, which, in turn, is constructed from the model of income–leisure choice.¹ However, after an extensive survey of the literature on male labor supply, John Pencavel, concludes that given the empirical findings based both on the conventional static and life-cycle model of income–leisure choice, “the scientific procedure is surely to regard the theory as it has been formulated and applied to date as having been refuted by the evidence” (Pencavel 1986, pp. 94–95).² In itself, this theory cannot provide any substantive analytical predictions on the course of labor supply by an individual or ...