ECO339H1 Chapter 4: Labour supply over the life cycle
Document Summary
Trying to isolate the effect of age, or time, for the evolution of a variable. Key question: current older generation provides a good estimate of what the outcomes will be for the younger generation when they are older. Economic variables in the labour supply model explain very little of the evolution of female labour supply. First approach would treat an individual"s life-cycle labour supply as a sequence of static labour supply problems. Each period the individual would respond to the economic environment that exists in that period. As long as the substitution effect dominated individuals would work most when their wages were highest. Problem: it ignores the possibility that individuals may be forward looking: they may react today to changes in their anticipated wage path, or to other changes to their future economic environment, temporary vs. permanent wage changes. The basic idea is that individuals plan out their lifetime labour supply, given their expected lifetime environment.
