Flexible labour supply and the preference for random wages
نویسنده
چکیده
An individual who responds flexibly to wage changes may benefit from random wages. A necessary condition for a preference for wage risk is that the labour supply curve slopes up. Jointly sufficient conditions for wage risk to be preferred are that the individual is neutral to full income risk and the substitution effect of a wage change is at least twice the size of the total income effect. The conditions are applied to the cases of homothetic preferences, Cobb-Douglas utility when there is positive non-labour income, and quasi-linear utility. JEL classification: J22; D81
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