ABSTRACT
When people ftrst enter the labour force, the market wage rate exerts only a substitution effect on their behaviour, inducing them to work longer hours when they work. But further increases in the market wage also generate an income effect that tends to induce people to work less time in the market and to demand more time in non-market activities. This negative income ~ffect is proportional to the number of hours worked and may therefore eventually entirely offset the positive substitution effect on labour supply behaviour; in this case, individuals confronted by a higher wage will tend to work fewer hours. Economic theory of demand, therefore, offers no clear predictions as to how an increase in market wage opportunities will affect labour force participation rates or hours worked in the market. If other sources of income are held constant, women often exhibit the tendency to work more of their time in the market as their market wage increases. Men, on the other hand, display the reverse tendency; as their market wage rate increases they reduce their market labour supply.
