Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 12, No. 3, pp.227-238
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 1999
Received Jan 1999 Revised Jun 1999

On the Theory of Labor Supply with Wage Rate Uncertainty

Carmen F. Menezes ; X. Henry Wang
Professor, Department of Economics, University of Missouri, Columbia, MO 65211, USA, Tel: +1-573-882-6094, Fax: +1-573-882-2697 menezesc@missouri.edu
Associate Professor, Department of Economics, University of Missouri, USA, Tel: +1-573-882-4954 wangx@missouri.edu

JEL Classification: D81

Abstract

Kim (1994) uses the uncertainty counterpart of price compensations to decompose the effect of increased wage uncertainty on labor supply into income and substitution terms. This paper complements Kim's work by formulating the uncertainty counterpart of income compensations commonly used in economic theory. Substitution and income effects based on income compensations are derived and compared to those derived by Kim. Necessary and sufficient conditions on preferences to sign these effects are also provided.

Acknowledgments

We wish to thank two anonymous referees for their comments.

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