In economics, time is divided between work and leisure.

An individual earns wages by working. The wage provides income to purchase goods and services, such as food, clothing, and housing. The consumption of these goods and services provides utility to the individual. So an individual can work for longer periods of time and earn a greater amount of wages, which can be used to purchase a higher quantity of goods and services.

Leisure includes time not spent on work, including activities like eating, sleeping, watching television, hiking, reading, and playing sports. Time spent on leisure provides utility in the form of rest, relaxation, and rejuvenation. While an individual enjoys the time spent on leisure, every hour spent in leisure has an opportunity cost: the wages one could have earned during that leisure time. In other words, the wage represents the opportunity cost of choosing leisure over work. When wages increase, the opportunity cost of leisure also rises, making leisure time more "expensive" in terms of the income foregone.

The Labor-Leisure Trade-off

The labor-leisure model illustrates the trade-off between earning income through work and enjoying leisure time. When an individual allocates more time to work, they earn a higher income, enabling increased consumption of goods, which raises utility. However, this increase in working hours reduces the time available for leisure, potentially lowering utility. Conversely, dedicating more time to leisure decreases income, limiting consumption, but may enhance overall utility if leisure is highly valued.

Deciding how many hours to allocate to work versus leisure is a fundamental choice. The concept of the labor-leisure trade-off plays a significant role in individual decision-making about work.

An individual's willingness to participate in a job depends on their preferences for work versus leisure, the wage offered, the nature of the job, and various other factors.