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Q What measure can we use to empirically test the responsiveness of hours worked to changes in the wage rate? What can we conclude if this measure is positive, what if it is negative? What do we know empirically about individual’s responses to changes in the wage rate?

Answer 1

To empirically test the responsiveness of hours worked to changes in the wage rate we can use the measure of records of the labour employment in different industries and at different times when the wage rate was different. The records will show the hours worked by labours at different wage rates. Then we can calculate the average hours of work done per month at different wage rates in different industries.

If the measure is positive it means that with increase in wage rate the number of hours worked by the workers also increased. We can conclude from this positive relationship that people like to earn more money and are willing to work hard and forgo leisure when the wage rate is high. This also shows that workers may be poor as they want to earn extra money at the cost of leisure.

If the measure is negative it means that with increase in wage rate number of hours worked by workers decreased. From this we can conclude that these types of labours like leisure. As their wage rate increases they can earn more money in less time and rest of the time they can spend leisure doing their favourite activity. This can also be related to the financial condition of labour as those labours who like leisure are relatively richer.

In this real world we know empirically about individual's responses towards changes in the wage rate that in most of the cases as there is increase in wage rate people work for more hours so that they can earn more money which they save for future ise. There may come some time that the wage rate may go down and at that time they can survive without doing work from savings. It is also understood generally that we should grab the chance when we get because golden chances never comes again and again.

Though these things happen generally but to tell them at certainty we have to carry empirical study.