[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

WAGE (DOLLARS PER HOUR)
w R
Individual labor
supply curve
0 80
HOURS PER WORKER
Figure 8.3
THE LABOR PARTICIPATION
DECISION
The reservation wage W R is the minimum
wage at which an individual supplies labor.
The decision about whether to work is called the labor force participation decision.
Figure 8.3 shows the labor supply curve for an individual—it shows how many
hours that person is willing to supply at each real wage. The minimum wage at which
the individual is willing to work, W R , is called the reservation wage. Below the
reservation wage, the individual does not participate in the labor force. For men,
the reservation wage traditionally has been very low.
Today, most women also work for pay, but for them, unlike men, such employment
is not traditional. Only a few decades ago, the social presumption was that middleclass
women, if they worked at all, would drop out of the labor market after they
began to bear children. And many mothers did not reenter the market even after
their children were grown.
The increased quantity of labor supplied by women over the past fifty years
can be viewed partly as a movement along the labor supply curve and partly as a
shift in the curve. Job opportunities for women have burgeoned over the past thirty
years, and relative wages have risen. Thus, the remuneration from working has
increased, raising by the same amount the opportunity cost of being out of the labor
force. For women already in the labor force, these wage increases have opposing
income and substitution effects, just as they do for men. But for women who were
not previously part of the labor force, only the substitution effect operates: if a
woman was working zero hours, an increase in wages does not raise her income—
there is no income effect. Therefore, the substitution effect acts to draw more
women into the labor force. 1 The aggregate effect of increased wages on the
quantity of labor supplied by women represents a movement along the labor
supply curve.
There has been a large increase in labor force participation by
women over the past thirty years.
1 It is important to note here that the labor force, as economists define it, includes not only those who have jobs
but also those who are looking for jobs. It is also important to note that when we refer to “labor supply,” we
refer to “market” labor supply—that is, work for pay. Many people perform tasks at home that are comparable
to those they perform at work; nonetheless, these are not included in the analysis of labor supply.
180 ∂ CHAPTER 8 LABOR MARKETS