ABSTRACT
Currently labour supply is one of the most active research areas in labour economics. According to Blundell and MaCurdy (1999) ‘research on labour supply during the past decade has been at the forefront of developments in empirical microeconomics’ (p. 1560). The surveys by Killingsworth (1983), Pencavel (1986) and Heckman (1993) bear witness to this activity at both the theoretical and empirical levels. It is not our intention either to replicate or to replace such near-exhaustive treatments. Instead this chapter will outline the dominant neoclassical theory of labour supply before extending the analysis to examine the effects of varying wage rates, incorporate income taxation, and introduce non-work welfare benefits. We shall distinguish between male and female labour supply both in theory and empirically. The more dynamic lifecycle modelling of labour supply will also be considered. There are important topical policy aspects of labour supply that need to be addressed, ranging across: concern over demographic changes; discussion about the role of women in the paid labour market; and consideration of the impacts of the tax and welfare benefit regimes. Our analysis of labour supply will touch upon all of these policy issues. It will also lay the foundation for the subsequent treatment of the other areas of labour economics, in particular, job search (Chapter 9), education, training and employee signalling (Chapter 5) and the supply-side view of unemployment (Chapter 10). An understanding of labour supply will also enter into an assessment of movements in labour productivity through an examination of labour supply responses to varying wage rates, a link that will be made explicit in Chapter 3.
