Individual Decisions for How Much

¶ … individual decisions for how much one works (referred to as individual work supplies). One of the models the author presents is the work-leisure model. According to this model, the work supply decision is determined within the model framework that uses two variables: leisure and work. In other words, the time an individual has within his daily 24 hours can be divided into either work or leisure, the individual decision regarding this being reflected in the work supply.

The various combination of work (represented by the product of work, real income) and leisure (its effect, satisfaction) form the indifference curve. Several of the properties of the work-leisure indifference curve include the fact that it has a negative slope (the leisure and real income are interconnected and one gives up on leisure time to work and produce more; the same way, extra leisure time means less work and less money); it is also convex (because of the marginal rate of substitution); it reflects different work-leisure preferences, forming an indifference map with all the indifference curves.

On the other hand, the two variables mentioned are often working with a third one: the budgetary constraint which impacts the final decision. Work is not necessarily a voluntary activity that the individual can just decide whether to do it or not and in what quantity. It is generally imposed by the individual's necessity to have a monthly income and budget, which can help him cover his financial obligations. By intersecting the indifference curve with the budgetary constraints, one has a clear image of the optimal solution that the individual can reach in splitting his or her time between leisure and work, while still covering his budgetary obligations.

Other things need to be taken into consideration as factors impacting the work vs. leisure decision. The wage rate should, to some degree, be directly proportional with the quantity of work provided. In this sense, if the wage rates increased, then the quantity of work provided should increase as well, in an attempt to maximize revenues. However, this is only true to some degree: at some level of the wage rate increase, the work provided will start to decrease, mainly because of a psychological effect this has on the individual. At the same time, an increase in income levels should increase the time provided for leisure, because some of the increased income can be used in leisure activities that would include additional spending.