Labor Economics Question?
Hi people,
Could really use your help with this one.
Assume that leisure is a normal good and that the price of goods purchased in the marketplace rises. What is the impact of the worker's probability of entering the labor force if they are currently not in the labor force? if they are currently working , how will it impact their utility maximizing hours of work?
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It depends on the value of leisure relative to other goods. The price of leisure is the opportunity cost of more work. I can deliver pizza on Friday nights after my regular job to pay for my new iPad, but then I am not partying with my friends. So what is the utility of leisure vs. the utility of the iPad?
If the price of goods is rising, then the relative opportunity cost of leisure goes down, not up, since my wages earn me less iPads.