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Local price variation and labor supply behavior

Author

Listed:
  • Dan A. Black
  • Natalia A. Kolesnikova
  • Lowell J. Taylor

Abstract

In standard economic theory, labor supply decisions depend on the complete set of prices: wages and the prices of relevant consumption goods. Nonetheless, most theoretical and empirical work in labor supply studies ignores prices other than wages. We address the question of whether the common practice of ignoring local price variation in labor supply studies is as innocuous as generally assumed. We describe a simple model to demonstrate that the effects of wage and nonlabor income on labor supply typically differ by location. In particular, we show that the derivative of the labor supply with respect to nonlabor income is 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.

Suggested Citation

  • Dan A. Black & Natalia A. Kolesnikova & Lowell J. Taylor, 2008. "Local price variation and labor supply behavior," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Oct, pages 2-14.
    • Handle: RePEc:fip:fedlrd:y:2008:i:oct:p:2-14:n:v.4no.1
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    References listed on IDEAS

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    Cited by:

    1. Daniela Campus & Gianna Giannelli, 2016. "Is the Allocation of Time Gender Sensitive to Food Price Changes? An Investigation of Hours of Work in Uganda," Working Papers - Economics wp2016_16.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    2. John V. Winters, 2013. "Human capital externalities and employment differences across metropolitan areas of the USA," Journal of Economic Geography, Oxford University Press, vol. 13(5), pages 799-822, September.
    3. Black, Dan A. & Kolesnikova, Natalia & Taylor, Lowell J., 2014. "Why do so few women work in New York (and so many in Minneapolis)? Labor supply of married women across US cities," Journal of Urban Economics, Elsevier, vol. 79(C), pages 59-71.

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    Keywords

    Labor supply; Prices;

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