ABSTRACT
Existing subsistence, efficiency, target income, and limited aspiration theories impose a backward bending labor supply behavior on poor LDC workers. Recent empirical studies of worker behavior in the unorganized sectors of LDCs contradict this view and report evidence of both forward falling and upward rising labor supply. This study formulates an increasing elasticity of substitution utility function model to analyze the observed behaviors. The function displays both nonhomotheticity and variable elasticity properties, and is capable of generating labor supply curves with forward falling and upward rising segments. While the upward rising supply is considered to be usual worker behavior, the forward falling segment represents a below-subsistence distress sale phenomenon, and the subsistence income of the worker is implied to occur at the turning point joining the two segments of the supply curve. Econometric estimates of the utility and the labor supply functions provide support to the theoretical results.
