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For women, this will be big.
We know the sign.
The smallest this can be is 0.
We know the sign.
But it's going to be a very
small substitution effect,
because I don't have
a lot else to do if
my wage goes down.
Women, if it's a low
wage, why work?
You can be much more effective
taking care of the kids or
hanging out with your friends.
Why work for a low wage?
Men, there's nothing
else to do.
So that's the relative size to
the substitution effects.
Now, the income effect, I think,
is a little bit harder.
And let's come back and
think about what
drives an income effect.
We talked about the income
effect as being delta q over
delta y, how much a
quantity changes
when your income changes.
But, in reality, what's going
to matter for your income
effect given when you start
today, is going to be not only
delta q over delta y, how your
taste for work changed or
income changes, but also how
hard you worked to start.
Think of it this way.
The income effect is how much
richer you feel if your wage
goes up, or how much
poorer you feel if
your wage goes down.
If you are working 0 hours,
the income effect is 0.
You don't feel any richer if the
wage goes up, because you
don't earn any money.
The more hours you work the
bigger the income effect is,
because the bigger that
shock is to you.
So we can think of the income
effect, a shorthand for the
income effect, is going to be
h times dh/dy, the hours you
work times how your hours
change with your income.
OK?
Now, to prove this it involves
using complicated algebra.
We're not going to get into