The relative income effect and labor supply

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In the presence of relative income concerns, labor supply response is predicted to be smaller for individual wage change than for global wage change. This difference arises from the relative income effect, which in the case of global wage change is offset by changes in income distribution. We relate the predicted difference in labor supply response to the controversy about differences in micro and macro labor supply elasticities. The relative income effect can also account for a variety of empirical patterns of labor supply elasticity that could not be previously addressed within a single framework.
Original languageEnglish
Pages (from-to)176-184
Number of pages9
JournalJournal of Economic Behavior and Organization
Early online date17 Mar 2023
Publication statusPublished - 31 May 2023

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ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management


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