Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
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.

References

  • Allen, R. G., and Mishan, E. J. “Substitution Terms: A Comment.” Economica 34 (1967): 431-2. [https://doi.org/10.2307/2552096]
  • Block, M. K., and Heineke, J. M. “The Allocation of Effort under Uncertainty: The Case of Risk-Averse Behavior.” Journal of Political Economy 81 (1973): 376-85. [https://doi.org/10.1086/260033]
  • Hadar, Josef. “The Substitution Term Is Ambiguous.” Economica 34 (1967): 428-30. [https://doi.org/10.2307/2552095]
  • Kim, Il Tae. “A Reexamination on the Theory of Labor Supply with Wage Rate Uncertainty.” Seoul Journal of Economics 7 (1994): 23-34.
  • Kimball, Miles. “Precautionary Saving in the Small and in the Large.” Econometrica 58 (1990): 53-73. [https://doi.org/10.2307/2938334]
  • Richard, Scott. “Multivariate Risk Aversion, Utility Independence and Separable Utility Functions.” Management Science 22 (1975): 12-21. [https://doi.org/10.1287/mnsc.22.1.12]
  • Tressler, J. H., and Menezes, C. F. “Labor Supply and Wage Rate Uncertainty.” Journal of Economic Theory 23 (1980): 425-36. [https://doi.org/10.1016/0022-0531(80)90023-X]