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If the substitution effect is stronger than the income effect then the labour supply slopes upward. If, beyond a certain wage rate, the income effect is stronger than the substitution effect, then the labour supply curve bends backward. Individual labor supply curves can be aggregated to derive the total labour supply of an economy. [1]
The labour supply curve shows how changes in real wage rates might affect the number of hours worked by employees.. In economics, a backward-bending supply curve of labour, or backward-bending labour supply curve, is a graphical device showing a situation in which as real (inflation-corrected) wages increase beyond a certain level, people will substitute time previously devoted for paid work ...
The Dual Sector model, or the Lewis model, is a model in developmental economics that explains the growth of a developing economy in terms of a labour transition between two sectors, the subsistence or traditional agricultural sector and the capitalist or modern industrial sector.
MPP L curves corresponding to their respective capital and labor levels have been drawn as M o, M 1, M 2 and M 3. When capital stock rises from K o to K 1, the marginal physical productivity of labor rises from M o to M 1. When capital stock is K o, the MPP L curve cuts the labor supply curve at equilibrium
The Phillips curve is an economic model, ... equals the trend rate of growth of average labor ... Supply shocks and changes in built-in inflation are the main factors ...
The Frisch elasticity of labor supply captures the elasticity of hours worked to the wage rate, given a constant marginal utility of wealth. Marginal utility is constant for risk-neutral individuals according to microeconomics. In other words, the Frisch elasticity measures the substitution effect of a change in the wage rate on labor supply. [1]
The direction of the slope may change more than once for some individuals, and the labour supply curve is different for different individuals. Other variables that affect the labour supply decision, and can be readily incorporated into the model, include taxation, welfare, work environment, and income as a signal of ability or social contribution.
In this earlier model, supply (specifically labor supply) is a direct function of real wages: more work will be done when real wages are high and less when they are low. Under this model, unemployment is "voluntary". [3] In 1972 Lucas made a second attempt at modelling aggregate supply. [3]