Chap013.8 - ± Example(continued z Using an Earned-Income...

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8 Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 43 Employer surplus without minimum wage Worker surplus without minimum wage Worker and Employer Surplus in an Unregulated Labor Market L (person-hours/day) W ($/hour) By how much will a minimum wage reduce total economic surplus? S D 5,000 5 10 10,000 Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 44 The Effect of a Minimum Wage on Economic Surplus S D 5,000 5 10 10,000 3,000 3 7 L (person-hours/day) 0 Employer surplus with minimum wage Worker surplus with minimum wage Reduction in total surplus caused by minimum wage Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 45 Methods of Income Redistribution ± The Earned-Income Tax Credit (EITC) z A policy under which low-income workers receive credits on their federal income tax Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 46 Methods of Income Redistribution
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Unformatted text preview: ± Example (continued) z Using an Earned-Income Tax Credit ² With no minimum wage, employment = 5,000 person-hours/day ² Workers get paid $5/hr ² Worker surplus is $4,000/day less than with the minimum wage ² The tax credit would be $0.80/hr for 5,000 person hours/day Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 47 Methods of Income Redistribution ± Example z If the EITC were financed by a $4,000 tax on employers, employer surplus would be $4,000 greater than under the $7 minimum wage. Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 48 Methods of Income Redistribution ± Public Employment for the Poor z Overcomes the shortcomings of the EITC and NIT ² EITC does not help the unemployed ² NIT reduces the incentive to work...
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