igher Hours of Work 83 ively Review Questions wage MID ars a the I'se the labor/leisure model to analyze the effect on hours of work of a law requiring employers to pay time and a half for hours worked over 40 per week. one a. First, draw a budget constraint for someone earning $8 per hour who receives $100 a week in m a nonlabor income. What now happens to the budget constraint with the time-and-a-half Otal requirement? . Given your answer to (a), draw an indifference curve so that, given the original budget constraint, the person is working 40 hours per week. What now happens to hours of work given the new budget constraint? Draw an indifference curve to show this. Have hours of work increased or decreased as a result of the overtime law? Explain why. c. In words, define the income and substitution effects. Next, use the graph to identify the income Land substitution effects. Which is stronger? d. If the wage had been increased for all hours worked rather than just for those after 40 per week, would the change in hours of work be any different? Show this in the graph and explain why or why not. 2. Use the labor/leisure model to analyze the effect on labor supply of a lump-sum tax (a tax that is independent of income, such as a property tax) and a proportional income tax (the tax rate t is constant regardless of earnings). Identify the income effect and the substitution effect (if any) caused by each tax. 3. If every employer in the labor market mandates a fixed work schedule, is there still room for choice by individuals concerning their hours of work per week? What economic forces would induce employers over the long run to change fixed work schedules to match more nearly the preferences of workers? Does this result depend at all on how competitive the labor market is, say as measured by the number of employers in the market? 4. Use the labor/leisure model to illustrate the impact of increasing the implicit tax rate t in a TANF program from * = .50 to t = 1.00 on the labor supply decision of the following three groups: (a) those people working zero hours; (b) those people who are receiving some benefits, but who are also working in the market a few hours per week; and (c) those people who are receiving some benefits from the program, but who are also earning a sufficient amount to put them close to the break-even point. 5. Use the labor/leisure model to explain the long-term decline in hours of work per week during the twentieth century. What role, if any, did institutional forces have in this process? 6. In order to reduce the fixed cost of working, an employer is trying to decide whether to offer its workers an at-rate subsidy for parking or to compensate workers for the amount of time they are having to spend to get to work. Illustrate and compare the impact each of these policies would have on desired hours of the workers. 7. The following labor supply model for 8,274 women was estimated by Averett and Hotchkiss (REST.AT 1997). Use the estimates and Slutsky's equation to derive the gross wage elasticity, the compensated wage elasticity, and the income elasticity for this sample of women