Local price variation and labor supply behavior

Dan Black, Natalia Kolesnikova and Lowell Taylor

No 2008-016, Working Papers from Federal Reserve Bank of St. Louis

Abstract: In standard economic theory, labor supply decisions depend on the complete set of prices: the wage and the prices of relevant consumption goods. Nonetheless, most of theoretical and empirical work ignores prices other than wages when studying labor supply. The question we address in this paper is whether the common practice of ignoring local price variation in labor supply studies is as innocuous as has generally been assumed. We describe a simple model to demonstrate that the effects of wage and non-labor income on labor supply will typically differ by location. We show, in particular, the derivative of the labor supply with respect to non-labor income will be independent of price only when labor supply takes a form based on an implausible separability condition. Empirical evidence demonstrates that the effect of price on labor supply is not a simple \"up-or down shift\" that would be required to meet the separability condition in our key proposition.

Keywords: Labor supply; Price levels (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-lab and nep-ure
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Citations: View citations in EconPapers (3)

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Journal Article: Local price variation and labor supply behavior (2009)
Journal Article: Local price variation and labor supply behavior (2008)
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