Question

.T/F/U. At the aggregate level, labor supply is upward sloping because men and women work MORE hours as wages increase.

Answer 1

When wage increases, leisure become costly so the labor hour will be increased by substitution effect. Considering labor and leisure are normal goods.

By income effect, wage increases mean income increases, so the demand for leisure will be increased more.

If the income effect is less than substitution effect then the labor supply curve will be upward sloping. That is labor supply curve represents the positive direct relation between wages and labor hour supplied.

If the income effect is more than substitution effect then the worker will consume more leisure and less work. In this case, labor supply curve will be backward bending. That is labor supply curve represents an inverse relationship between the wage rate and labor hours supplied.

So labor supply curve depends on the magnitude of income effect and substitution effect. Therefore the given statement is FALSE.