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Labor Market Implications of Temptation and Patience: Evidence and Theory

21st National Competition for Economic Research Grants (2022)

Applied Economics

Senior Researcher : Estrella Gómez Herrera

Research Centre or Institution : Universidad de las Islas Baleares. Mallorca


For most individuals, choosing their level of human capital investment or deciding how much labor to supply are key decisions that not only determine their prospective labor market performance and future welfare but also have large macroeconomic consequences for the economy as a whole. These types of inter-temporal decisions involve the comparison of, not only the present value of each alternative but also the future utility streams that each alternative will derive. In the standard macroeconomic model, future utility streams are discounted by using a geometric and constant discount factor. However, empirical evidence has shown that individuals are subject to temptation. Also, there is large evidence that the discount rate is not constant but rather decreases with wealth. All of these suggest that individuals may behave very differently compared to what the standard macroeconomic model predicts when taking inter-temporal decisions.

This project aims to study workers’ decision patterns in an inter-temporal context. We propose to explore how workers’ labor market outcomes (supply and/or wages) react to shocks that affect their present and future decisions, both from a theoretical and an empirical perspective. Importantly, we take into account the role of impatience and self-control. This project is divided into two parts. In the first part, we will study the impact of receiving bequests on workers’ patience and its implications for their labor market outcomes. In the second part of the project, we propose to explore the role that impatience plays in human capital investment.

The results of this project can lead to important implications regarding the understanding of the dynamics of human capital accumulation. Notably, this research project has crucial implications for policies related to the education system and the labor market.

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