Dec 31, 1975
In this study examining the role of assets in labor supply functions, the author argues that although assets have frequently been used to measure the response of hours worked to nonwage-related income, it is incorrect to include them in a labor supply function. Using a simple life cycle model to examine the relationships between working hours and assets, he shows that both are simultaneously determined by similar economic forces, and that the correlation between them should not be accepted as evidence of a causal sequence from assets to market work. He also shows that savings are determined by a life cycle variation in the wage rates of family members and the interplay of interest rates and time preferences. Some empirical applications are attempted, using data from the Survey of Economic Opportunity.