5) Consider two antipoverty programs, AFDC and EITC, and there affects on labor supply. a) Assume AFDC gives a weekly payment of nonlabor income…
5) Consider two antipoverty programs, AFDC and EITC, and there affects on labor supply.
a) Assume AFDC gives a weekly payment of nonlabor income while effectively reducing a participants wage by half. How would income effects change a workers consumption/leisure decision? How would substitution effects change a workers consumption/leisure decision? What would happen to a participants reservation wage?
b) Assume EITC simply increases a poor workers wage. How would income effects change a workers consumption/leisure decision? How would substitution effects change a workers consumption/leisure decision? What would happen to a participants likelihood of participating in the labor force?
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