Using the labor-leisure model, evaluate the following: A. What happens to the probability that a worker enters the labor force when the wage increases? Does the wage increase generate an income effect? B. What economic factors determine whether a person enters the work force? What are some non-wage factors that influence whether a worker enters the work force? C. What happens to the reservation wage when non-labor income increases and why? D. Why and how might welfare payments create work disincentives?

Using the labor-leisure model, evaluate the following: A. What happens to the probability that a worker enters the labor force when the wage increases? Does the wage increase generate an income effect? B. What economic factors determine whether a person enters the work force? What are some non-wage factors that influence whether a worker enters the work force? C. What happens to the reservation wage when non-labor income increases and why? D. Why and how might welfare payments create work disincentives?

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: Earnings And Discrimination

Section: Chapter Questions

Problem 3PA

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2. Assume that in the state of Kentucky, Bill is guaranteed S400 of welfare benefits if he does not work at all. They are allowed a disregard of $100 and face a tax rate of 50%. He has a nonlabor income equal to zero and if the works he can carn a wage of $10 per hour. His total time is 200 hours a woek. a. How many hours of leisure is Bill consuming at his break even point? b. Graph the budget constraint, labeling the break even point and other breaks in the curve as well as slopes of each line. Draw Bill's indifference curves such that he chooses to work 5 hours a month.
Fringe benefits:a. As you might have suspected, employee nonwage (fringe) benefits make up a muchlarger percentage of labor costs in the United States today than they did a few generationsago (refer to Table 3.1 in the textbook). Fringe benefits as a form of labor compensationis also very unique to the U.S. and other developed nations. Do you think that thegrowing fringe benefit share of labor costs has made the level of employment moreresponsive or less responsive to changes in labor demand over the ups and downs in theoverall economy? In other words, has it given the employers of labor more or lessflexibility as they try to adapt to continuously changing economic conditions?