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Non-pecuniary Work Incentive and Labor Supply

Author

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  • Y. Hossein Farzin

    (University of California)

  • Ken-Ichi Akao

    (Waseda University)

Abstract

Recognizing that people value employment not only to earn income to satisfy their consumption needs, but also as a means to gain socio-psychological (nonpecuniary) benefits, we show that once nonpecuniary work incentives are incorporated into standard labor supply theory, (i) the wage rate under-estimates (over-estimates) the true value of nonwork/leisure time when work has nonpecuniary benefits (costs), (ii) nonpecuniary benefits can be a substitute for monetary wages as work incentives, (iii) at very low wage rates, work can become a net source of utility, and (iii) the shape of labor supply curve differs from standard theory. We also identify conditions under which a greater nonpecuniary work incentive generates a larger individual labor supply, and examine the effects of non-wage income on labor supply both for paid and voluntary work.

Suggested Citation

  • Y. Hossein Farzin & Ken-Ichi Akao, 2006. "Non-pecuniary Work Incentive and Labor Supply," Working Papers 2006.21, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2006.21
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    References listed on IDEAS

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    1. Tobias Kronenberg, 2008. "How does reciprocal behaviour of workers influence the wage setting of unions?," Spanish Economic Review, Springer;Spanish Economic Association, vol. 10(4), pages 303-320, December.

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    More about this item

    Keywords

    Nonpecuniary incentives; Labor supply; Non-wage income; Voluntary work;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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