Distribution of Time between Work and Leisure - Essay Example

The third property is the indifference map which reflects different levels of utility. An individual will attain maximum total utility on the highest position of the indifference curve. The fourth property is the work-leisure preference of the individual. The shape of the curve is determined by an individual’s preferences, occupation, and personal circumstances. A flat curve reflects a person with an occupying job. A nursing mother will have a relatively steep indifference curve because much of her time is spent on non-labor market activities.

An individual’s budget is controlled by the number of wages earned. Budget constraint is reflected by the wages earned and this has an overall effect on the shape of the indifference curve. An Individual’s maximum utility is attainable at the highest position on the indifference curve.

Changes in wage rates affect the number of working hours. An increase in the number of working hours increases the wage rate but with time wage increases may reduce the number of working hours. The wage rate is affected by income and substitution effects. The income effect results from the change in the desired number of working hours as a result of income change, wages are kept constant.  An increase in income means more money will be available to spend on purchasing leisure. The effect is the reduction of the desired number of working hours.

Substitution effect results from the change in the desired number of working hours as a result of changes in wage rate, income is kept constant. When leisure becomes expensive, it is sensible for the individual to work more hours and reduce time spent on leisure. The effect is an increase in the number of working hours. The overall net effect will depend on the magnitude of income and substitution effect.

Women are more responsive to changes in wage rates than men. This is due to the differences in the allocation of time. Men use their time in the market and leisure whereas women use their time in the market, leisure, and work at home. However, this trend is changing among married women, responsiveness to changes in wage rates is like that of men.

Participation of an individual in the labor market is determined by reservation wage. Reservation wage is the lowest wage at which an individual decides to work. If the market wage is below the reservation wage, the individual chooses not to work. If the market wage is above the reservation wage, the individual chooses to work.

 A standard workday has a particular number of hours that a worker is supposed to comply with. Over-employment occurs when a worker highly values leisure. The marginal rate of substitution of leisure for income goes beyond the wage rate. Underemployment occurs when the marginal rate of substitution for income is below the wage rate. The underemployed individual will look for a second job to balance work and leisure time.

Premium wage rates earned in overtime work require more working hours than straight time wages and sometimes income earned is the same. Income maintenance programs increase the monetary income. If leisure is a normal good, the number of working hours is few. This program triggers income and substitution effects which hurt work.