The neoclassical style of labour leisure choice

In this society, few people are able goods and education without working. Since we aren't all wealthy, most of us must work to be able to cover our living costs and other expenses (Borjas, 2008). However, our decisions on whether to work or not derive from many factors that motivate or discourage us to enter the labour force, then we have to decide how many hours to work. The first and second part of the essay will discuss about a person's work-leisure decision regarding to her decision to work or not, and the amount of hours to work. In the 3rd part, I am going to discuss about Clark's report on job satisfaction of women and men. Although women had higher levels of reported stress in their life, they seem to be happier in work than men. Finally, the results that are recently reported by Booth and van Ours (2007) also support Clark's conclusions.

The neoclassical model of labour-leisure choice can be used to analyse labour supply behaviour and identify the factors in a person's work decision and her decision how many hours to work (Borjas, 2008). Within this model, individuals' satisfaction which is obtained from consumption of goods (denoted as C) and leisure (L) is presented by utility function (economists assume that both goods and leisure are normal goods)

We want to maximise our well-being by eating all the goods and leisure even as can. However, there's a trade-off between consumption and leisure (Sparknotes, 2010). If we want to consume more leisure, then we must quit goods and services because we can not afford them since we work less (or do not work). Inside the other hand, if we spend additional time to work, then we have been wealthy enough to buy those goods and services; though we cannot consume the maximum amount of leisure as before.

In order to understand a person's work-leisure decision, we use indifference curve analysis to describe their responses. Indifference curve analysis includes two concepts: indifference curve and budget constraint (bized). A person can make her decision through the mixture of the consumption of leisure and goods, in which we can analyse her work-leisure decision by using a combo of her budget constraints and her indifference curves. The person's budget constraint can be written as

Where C: the value of expenditures on goods, wh: labour earning, and V: non-labour income (such as property income, lottery prises, medical insurance, disability insurance, dividends, retirements program)

The total time allocated to work and leisure must equal the full total time available in the time, say T hours per week, so that

Figure 1 illustrates the optimisation in utility of the person by combining her budget constraint and indifference curves. She'll choose point P (as this is her optimal consumption of goods and leisure) because she is better off at point P. At point P, she will consume T1 hours of leisure and h1 hours of work per week. Remember that in this figure, we assume that the indifference curves are convex to the foundation, which is equivalent to assumption of diminishing marginal rate of substitution. It is the amount of consumption one is willing to give up for an extra hour of leisure time diminishes as free time increases (lecture note).

We are interested in just how many hours of work a person will choose when non-labour income (V) (may be because of higher investments return or inheritance money) or wage (w) increases. You will discover two types of effects which dominate in this model: the income effect and the substitution effect. When non-labour income increases (holding the wage constant), the income effect reduce hours of work (as people have a tendency to take more leisure as they feel wealthier)

The worker's opportunity set expands as non-labour income increases, thus causes a parallel shift in her budget line. An increase in non-labour income does mean that whenever holding the wage regular and the income effect generates, the worker have a tendency to reduce hours of work (assume that leisure is a normal good).

When the wage rate increases, its total effect is the sum of the income and substitution effects. A person will certainly reduce her hours of work if the income effect dominates (in this case, a person is effected only when she actually is working); instead if the substitution effect dominates, she'll increase her hours of work. If both effects are equal, then you will see no change on individual's hours of work or hours of leisure. In Figure 3, as the wage rate increase, the income effect generates lead to a decrease in hours of work (movement from point A to B), however, as the substitution effect has equal effect, individual increase her hours of work (movement from point B to C). Even as we can see, the hours of work remain the same.

A person makes her decision to work or not to work is based on the reservation wage. It is said that when the true wage exceed reservation wage, the staff will enter labour market. Therefore, if there is a higher reservation wage, people are less likely to work.

However, if we hold the reservation wage constant, high-wage persons will work.

The neoclassical model of labour-leisure choice has some limitations such as: it considers only leisure and goods and ignores home production; it offers simple linear budget constraints as in fact, the budget constraints are nonlinear due to taxes, government benefits; labour supply decision may be afflicted by other members' decision of a household; and lastly, it is one-period model, whereas lifetime labour supply model is more technical and dynamic (lecture notes).

Women's participation rate in labour force has been increasing due to: rise in real wage (encourages women to enter the labour market), decline in birth rate since the costs of experiencing one more child are extremely expensive, technological advances (which will be the convenient products to help women in household activities), social and cultural factors (feminism, religion), expansion of service industries, and low unemployment (lecture notes). Mammen and Paxon (2000) state that education levels, for girls themselves and their spouses, is an essential aspect in women's labour-decision. In a competitive labour market, women will consider the chance cost of her time and the income that "unearned" (non-labour income). A woman will withdraw from labour force if there is a rise in her non-labour income (may be because her husband's income has risen). However, when women's wage rises, it will depend on whether substitution or income effect dominates.

One interesting finding which made by Andrew Clark (1997) is the fact that women's job satisfaction levels are greater than men. Firstly, he introduced his theory of four possible explanations for women's higher degrees of job satisfaction, which can be: jobs and gender, work values, sample selection, and expectations. Clark used the individual and job characteristics as control variables in ordered probit regressions to test all the explanations, aside from the sample selection explanation, where he used Heckman sample correction in OLS regressions. His theory is presented as the utility function from working

u = u(y, h, i, j) (1)

where y is income, h is hours of work, and i is individual's feature and j is job characteristics.

He concluded that gender (i variables) shouldn't enter the equation (1), for example: "an identical man and woman in identical jobs should report the same job satisfaction score" (Clark, 1997).

The data in this paper were collected from the British Household Panel Survey (BHPS) which interviewed 10, 000 adults in 550 households in 1991. They were asked to rate their satisfaction levels (by the scale number in one to seven) with eight job aspects: promotion prospects, relations at work, job security, own initiative, total pay, the actual work itself, hours of work and something else.

Clark argued that job satisfaction has correlations with the gender's distinctions such as: age, education, health, and different job characteristics: establishment size, union membership and hours of work. He found that a sound body has large positive influence on job satisfaction while renter, union membership, and hours of work have small unwanted effects (an increase in hours to 50 weekly only reduces the predicted possibility of reporting overall job satisfaction of 7 to 38% and 30% for people, respectively); moreover, higher levels of educations and longer hours of work are linked with lower satisfied workers. Especially, women's overall job satisfaction is basically dependant on renter, union, marital status and managerial status. However, these findings only justify which types of personnel are satisfied, not why women tend to be satisfied than men.

The second explanation of this paper is work values (as men and women consider the work aspects differently). Men choose promotion prospects, job security and pay, are the most crucial job's aspects; while women rank highly the aspects such as: relations at the job and hours of work. Nevertheless, the results show that ladies who have same jobs, same personal characteristics and same work values, report an increased job satisfaction score than men do. Thus, work values do not describe why women are so happier at the job.

The third explanation of women's higher job satisfaction (sample selection tests how the individual experience working) is not effective since it relies on men and women's participation rate. Clark highlighted that men are more likely to maintain employment than women; specifically, married women are less likely to be employed. Since the sample sizes are small (men's participation rate is greater than women)

Expectations will be the last explanation for women's higher job satisfaction. Clark (1997) mentioned that ladies are happier at work than men, because they have got lower expectations. Education and upbringing form an integral part of expectations. For the higher-educated workers, younger workers, those whose mothers had a specialist job, those in professional positions, and the ones working at male-dominated workplaces will probably have higher expectations about their job aspects. Clark suggested that there is merely a temporary lead to women's higher job satisfaction which is explained by improved position of women in the society and labour market. He predicted that women's expectations and job satisfaction would be exactly like men, given that women's just pay rise at the same pay rates of men.

(gender) used the pooled ordered probit models to show that in the past decade, women's job satisfaction has indeed declined significantly (nearly by half), while men's job satisfaction has slightly changed. This paper results support the idea that women's higher job satisfaction is only transitory and Clark's prediction of gender differences in job satisfaction.

Furthermore, the results found by Booth and van Ours (2009) are indeed supportive to Clark's conclusions. Akerlof and Kranton (2000, cited by Booth and van Ours (2009)) explained that women's improved position in society (like the female suffragette movement) has managed to get more tolerable for females to work. This paper examines the partnership between part-time jobs and family well-being by using fixed-effects ordered logit estimation method on the panel data from the Household, Income and Labour Dynamics in Australia (HILDA). Hours satisfaction is considered to be taking care of of both men and women's job satisfaction. Women's job satisfaction is said to be increasing follow their partners' health. The results from pooled cross-sectional data indicate that men and women's job satisfaction is higher if their family income and health are high, which is constant with Clark's findings. While full-time work reduces women's hours satisfaction and job satisfaction, it does increase men's hours and job satisfaction. Booth and van Ours (20009) concluded that the male share of house work is actually low even when the female spend enormous hours in marketplace. This finding proposes a conclusion why women are happier with part-time work.

(developing) In contrast to Booth and van Ours' findings, Boo (2010) states that in developing countries (just as Honduras), women don't have higher job satisfaction refer to part-time job. Alternatively, men and women tend to be more satisfied when they are working full-time. For the fact that working full-time increases individuals' income, poorer women appears to value full-time jobs than non-poor women.

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