Chapter 21 – pg.

439

TULAGAN, David C. ELE

B1-11
Principles of Economics 05/10/21

Income Effects on Labor Supply: Historical Trends

“Less work, more pay” that’s usually the case when it comes to society and leisure. Of

course, who wouldn’t want to have more “me time” and less work time, but the problem

here is that, the world can’t and won’t work that way. If everyone got more and worked

less, society can’t fully function since labor would drop significantly. From back then,

reaching up to the present, human labor has changed drastically. Back then, labor

focused purely on manpower, and as time passes, technology has been developed to

aid, and sometimes take over the labor that was previously done by humans.

In the Principles of Economics by N. Gregory Mankiw, he elaborates the income and

substitution effects, to which the concept can be directly applied to the present topic.

Since it teaches us how the income effect can drastically affect how a worker is able to

buy more, and since they now have the means to afford their needs/wants, they might

work less, until they run out again, so they need to do more overtimes again. Their work

shifts from income effect to substitution effect. Having more income, means that they

can now spend more for their leisure, and by the time they are about to runout of

money, they shift into substitution effect, sacrificing their free time, so that they can earn
Chapter 21 – pg. 439

more. Mankiw also states that, instead of working more, people tend to utilize their

higher income, by enjoying more leisure. This could’ve been seen in modern times, as

there are cases where workers also tend to be more lenient in their workspaces, but

due to the pandemic, certain circumstances have changed. Workers get laid off,

especially in workplaces like theme parks, shopping malls, airlines, due to taking a

massive hit, since they rely significantly upon attending people, which is impossible now

due to the pandemic. The workers that are now laid off need to find new jobs, some

even find multiple just so they can compensate for the income that they previously had.

Labor supply has shifted to a more hands-off workplace like online shopping.

In the Philippines though, I can see it as having two sides. On one hand, those who are

already well off can apply the income effect to their labor. Politicians for example get

more than what some deserve, and in turn, they become lax towards their job. Some

give subpar input and output, but the income they get is not deserved. On the other

hand, those who aren’t well off, are forced to work multiple jobs just to be able to pay

the bills. They are then in the area of substitution effect since they substitute their free

time, and instead work. Mankiw also tackled winning lotteries, which is also present in

the Philippines. There are multiple winners in the lottery that win as big as P300 Million.

In 2018, 2 people won P1.18 billion which was recorded as the biggest in lotto history in

the country. Even if it was won by 2 people, P1.18 billion is no joke. This is enough to

make the winners retire, and spend their lives in leisure, and as the procedures in

winning the lottery with such a big amount, the winners can choose if they should
Chapter 21 – pg. 439

receive the winnings annually, or in a lump-sum. Choosing annually can in turn mimic

getting an annual salary, despite not working.

All in all, gaining more than enough income, or winning the lottery, etc. can cause a

decline in labor supply or the work put in due to being satisfied with the amount of

income they already get. If their job wasn’t their passion, they are most likely working to

get more income, thus getting income to fully satisfy their need/wants and have some or

more to spare, would impact the way they work. Though as stated above, the pandemic

has impacted the way income has affected the labor supply since a lot of people were

laid off. People had to innovate or find ways to still be able to get income. In the future I

am not quite sure to which direction the labor supply may take, it could increase again

once the society heals, and is able to go out again, as people are now able to find more

jobs again, and resume what they have had before.

Chapter 21 – pg. 439

References
Evanglista, A. (2018, October 2). LIST: Biggest lotto jackpots won in PH. From Rappler:
https://www.rappler.com/newsbreak/iq/list-biggest-lotto-jackpots-philippines
Mankiw, N. G. (2019). Principles of Economics. Cengage.
Rappler.com. (2018, October 14). 2 win P1.18-billion Ultra Lotto jackpot. From Rappler.com:
https://www.rappler.com/nation/pcso-ultra-lotto-jackpot-winners-october-14-2018
Zeidner, R. (2020, May 2). Cutting Staff in Times of Crisis. From CHRM:
https://www.shrm.org/hr-today/news/all-things-work/pages/cutting-staff-due-to-
coronavirus-fallout.aspx