In this chapter, I will consider theoretical and empirical analyses of labor supply in a dynamic setting. Such analyses have attracted increasing attention in recent years; it is not hard to see why. First, analyzing the ways in which decisions are taken with an eye to the future, and in which the consequences of decisions are distributed through time, is an exciting and demanding intellectual enterprise. Second, dynamic labor supply models are a response to an important empirical challenge: to develop a coherent story that can explain and illuminate a wide variety of “stylized empirical facts” about the lifecycle behavior of men and women that appear with surprising regularity in a variety of different kinds of data. Such stylized facts about the life cycle include the following:

1. In general, data for men suggest that the time profiles of labor supply or market time, wage rates (earnings per hour of market time), and earnings per year are all concave. That is, each of these variables tends to rise rapidly early in life but rises much more slowly in middle age. Indeed, both annual hours of work and annual earnings typically decline, among men, as the age of retirement approaches, with the peak in annual hours of work preceding the peak in annual earnings. On the other hand, wage rates – earnings per hour of market work – do not seem to decline, or, if they do fall, decrease only slightly at the end of working life.