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Labor-leisure tradeoff | Microeconomics | Khan Academy - YouTube
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so let's keep talking about labor as a
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factor
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of production in particular we're going
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to think about the supply curve of labor
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so when you're thinking about the supply
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or the demand curve for elite labor when
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you think about quantity you could just
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view that as hours worked in a certain
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time period
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hours worked
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and then for the price of labor you
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could just view that as wages
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and we've already thought about what the
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demand curve for labor would look like
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at high wages not a lot of folks will
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want to use that labor it's going to be
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so expensive they might not be able to
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afford it and then as wages come down
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more people will generally want will
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demand that labor and so they will want
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more hours to for folks to work and so
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this would be our
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demand
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curve
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or we could call this our labor demand
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curve now what about the labor supply
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curve what do you think that's going to
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look like
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well not a trick question
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when wages are low a lot of folks might
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say hey i have other things to do with
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my time but then as wages get higher and
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higher they might trade off those other
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things they're
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doing those other things in some ways
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has a higher opportunity cost it gets
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more expensive and so they might trade
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off those other things for working and
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so they might collectively work more and
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more hours and so as wages go up
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generally speaking hours worked goes up
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so this is a fairly classic looking
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labor
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labor
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supply
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curve
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and this dynamic that i just talked
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about where people are trying to trade
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off whether they work or whether they do
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other things this is typically referred
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to as the labor
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leisure
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leisure trade-off
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now in everyday language when you use
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the word leisure it's usually referred
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to you're relaxing or spending time with
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friends or enjoying yourself in some
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ways but when people talk about the
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labor leisure trade-off and economics
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they're really talking about labor or
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anything that is not labor so leisure
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would include sleeping or eating or
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using the restroom all of those would be
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included so it really should be called
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the labor
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not labor trade-off but i guess that
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doesn't that doesn't sound as good as
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labor leisure trade-off and so what you
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really see happening here is as wages
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are higher and higher people are willing
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to trade off leisure i'll put that in
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quotes for labor now the effect that we
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often talk about why that is and in a
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lot of ways it's common sense that's the
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substitution effect substitution
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effect
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as wages go higher you could view the
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opportunity cost of leisure gets more
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and more expensive and if anything gets
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more expensive you try to substitute it
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with other things in this case you could
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substitute it with more labor by just
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working more
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now there is an interesting dynamic that
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some people talk about which is the
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income effect
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which is the income
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effect
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and the income effect is as your wages
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go up you tend to want to
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buy or demand more of everything and you
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could view leisure as a good that you as
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a worker might want so there might be a
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dynamic that if income gets above a
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certain level that you actually might
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not want to work more that you actually
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might want more leisure because you have
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more than enough to supply all of your
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needs and so if you wanted to imagine
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what a labor supply curve would look
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like if you if you could imagine the
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income effect kicking in at higher wages
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it actually could look something like
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this at low wages it could look very
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similar to what we just described but
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then there might be some wage where
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people are like you know what i have
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enough money and rather than just
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working that extra hour i actually might
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want to spend that time with my family
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or or go on vacation and and a lot of
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ways it's a very healthy mindset
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my personal opinion i don't think enough
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people have that mindset
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but
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if that were the case at some point when
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wages get to a certain point people
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actually might want to
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work less
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and so you would have this backward
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bending labor supply curve so let me
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write this this is a labor
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supply
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curve
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with
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the income effect after a certain point
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income
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effect so it's an interesting thing to
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think about
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is there a certain income level above
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which people say you know what i have
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enough and rather than work harder i
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actually might work a little bit less
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interesting to think about
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