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Labor Supply I:

a. Consider a worker choosing how many hours to work. Suppose that nonlabor income increases. What will happen to hours of work? Why? Suppose now that wages increase. What will happen to hours of work why?

b. Let's evaluate the expected impact of the introduction of overtime pay on hours of work. Consider three cases. First suppose that before the overtime pay is started the optimal choice of hours is 5 hours per week. How would hours change in response to overtime pay in this case?

Second, suppose that before the overtime pay is started the optimal choice of hours is 35 hours per week. How would hours change in response to overtime pay in this case?

Third, suppose that before the overtime pay is started the optimal choice of hours is 45 hours per week. How would hours change in response to overtime pay in this case?

c. Now consider the choice to work or not. Suppose that nonlabor income increases. What will happen to the reservation wage? What about the probability of working? Suppose that wages increase. What will happen to the reservation wage? What about the probability of working?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9489335

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