Hit-Highlighting off Bookmark Print Richard Blundell and Thomas MaCurdy From The New Palgrave Dictionary of Economics, Second Edition, 2008 Edited by Steven N. Durlauf and Lawrence E. Blume Abstract The analysis of labour supply is placed in a general framework within which empirical models and their resulting elasticity estimates can be interpreted. An explicitly intertemporal life-cycle structure is developed for the choice of hours and participation. The relationship between economic substitution effects found in the labour supply literature and wage impacts on different concepts of employment is considered. We provide a separate discussion of the main issues surrounding the analysis of family labour supply and the analysis of the impact of taxation. We conclude with a discussion on the interpretation of labour supply elasticities for policy analysis. Keywords benefit take-up; collective models of the household; cost functions; dynamic programming; employment; Engel curve; Euler equations; Frisch specification; Hicksian effect; hours worked; indirect utility function; labour supply; linear expenditure system; Marshallian effect; optimal taxation; reservation wage; retirement; Slutsky effect; tax credits Article The formal analysis of labour supply in economic research extends back to the 1960s, in the work of Becker (1965), Cain (1966), Hanoch (1965) and Mincer (1960), among others. It was developed further in the 1970s, most importantly in the work of Ashenfelter and Heckman (1974), Burtless and Hausman (1978), Gronau (1974) and Heckman (1974a). It would seem reasonable to ask why interest continues in the study of labour supply and what unanswered questions and puzzles remain. Policy interest in labour supply continually motivates research on all aspects of the subject. One area of active inquiry evaluates the consequences of the new ideas in tax and welfare reform, especially those related to the growing focus on work requirements in the design of welfare reform and on the supply of effort by top-rate tax payers. Another important topic concerns the impacts of reforms of pension and health-care systems on labour supply decisions in later life. Yet another involves gender inequality and the role of female labour supply in removing gender earnings differences and in supporting family incomes. If in addition to these policy motivations, understanding hours-of-work behaviour lies at the heart of explaining the reasons underlying a variety of key trends in the economy. One is the unprecedented growth in female labour supply across many developed economies since the 1970s; a second is the decline in labour supply among older men over the same period, again a phenomenon common to many developed economies; and a third is the labour supply impact of the growth in the disparity between the labour labour supply : The New Palgrave Dictionary of Economics file:///C:/Documents and Settings/abego/Escritorio/labour supply.xht 1 de 30 24/01/2013 9:52