08.02.supply4

08.02.supply4 - BUEC 280 Lecture 12 Policy Applications of...

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  Prof. Simon D. Woodcock BUEC 280 Lecture 12 Policy Applications of the Leisure- Consumption Choice Model
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  Prof. Simon D. Woodcock Last day Isolated income and substitution effects  from a wage change Discussed some empirical evidence Derived the individual labour supply curve Reservation wages Today: applying the leisure-consumption  choice model to policy analysis
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  Prof. Simon D. Woodcock Policy Applications Many government programs (taxes, transfers,  etc.) affect the labour supply of individuals E.g., income taxes, payroll taxes, EI, worker’s  compensation, etc. We can analyze the labour supply response to  such policies using the leisure-consumption  choice model In general, policies affects the worker’s budget  constraint, not preferences
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Prof. Simon D. Woodcock Budget constraints with “spikes” Some policies compensate individuals who are unable to work EI: replace (some) lost earnings due to layoff Worker’s compensation: replace (some) lost earnings due to  injury/disability We call these  income replacement  programs They only pay benefits to those who are not working Creates a “spike” in the budget constraint Example: consider a workers’ compensation program that  pays injured workers 100% of their pre-injury earnings if they  are unable to work (work zero hours), but pays them $0 is  they work even 1 hour. How does this affect the incentive to return to work?
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This note was uploaded on 10/12/2009 for the course BUEC 280 taught by Professor Simonwoodcock during the Spring '07 term at Simon Fraser.

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08.02.supply4 - BUEC 280 Lecture 12 Policy Applications of...

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