Labor Supply

Introduction to Labor Supply

Summary Introduction to Labor Supply

In order to have the means to buy goods and services, most people have to work at least part of the time to generate income. While many would prefer not to work, the existence of this tradeoff between free time and consumption of goods forces most to work to be able to buy the minimum amount of goods to keep them content. Because people have different preferences, the ratio of leisure to consumption will vary from person to person: Joe might prefer to work hard and buy a yacht, and Lawson might prefer to sit on the beach and barely scrape together enough income to buy food and sunscreen. All workers in the labor market have to make this decision: how much free time do they want and how much "stuff" do they need?

Economists model this decision in much the same way that they model buyers' optimization of their choices between different goods and services. Because it's the same people making the decision (the buyers are also the workers), and because they are making a similar choice (between free time and consumption), we can use the same choice optimization under a budget constraint that we used in the unit on supply and demand.

In this unit, we will observe the preferences of individual workers and see how this behavior translates into their labor/leisure decisions.