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The Individual’s Supply of Skill and Hours of Work, and Demand for Training

Published online by Cambridge University Press:  17 August 2016

E.J. Driffill
E.J. Driffill*
Affiliation:
University of Southampton
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Extract

A number of models of the individual’s optimal allocation of time over his life between leisure, labor supply and training have recently been devised. Their analysis is a rich source of predictions about individual behaviour — effects of taxes, wealth, tastes, ability, etc. But this information is contained in the comparative dynamics of the models, of which relatively little is known. This paper is an attempt to remedy part of the deficiency : the model of Blinder & Weiss (1976) is examined in detail by means of numerical simulations, which offer several useful insights and reveal various strengths and weaknesses of this construction.

There are three principal areas where the comparative dynamics of the model give interesting results.

(1) Usually, analysis of the individual’s labour supply takes the wage rate as exogenous and is static. A model of optimal life-cycle labour supply and human capital accumulation makes both hours of work and the wage rate endogenous, and puts them in a dynamic context. It suggests that both may change in response to taxes, i.e., taxes may be shifted partly through the work/leisure choice and partly through work/training choices, and invites comparison of the sizes of the two effects. If the effects of taxes on human capital investment are large, then analysis of the relative efficiency of alternative tax schemes which exclude these effects may be seriously misleading.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 45 , Issue 3 , September 1979 , pp. 241 - 279
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1979 

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Footnotes

*

This work is based on part of my Ph. D. thesis submitted to Princeton University. I am very grateful to Alan Blinder and Orley Ashenfelter for much helpful advice and comment. George McKenzie made very helpful comments on a previous draft.

References

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