LABOUR SUPPLY 1. Consider an economy with a 100% clawback welfare program. If the government reforms this program to a negative income tax program with a lower clawback rate (e.g., 50%), how would this affect an individual's optimal labor supply? Hint: Try to be as comprehensive as possible with your answer. Utilize concepts such as substitution effect, income effect, and reservation wages. Consider dividing your answer into different cases depending on the individual's working hours under the 100% clawback welfare program.

Determine which of the three principle sources of wage differentials is most likely to account for each scenario. * A licensed physician earns more than a nurse: differences in total human capital compensating differentials differences in talent or ability * City sanitation workers earn more than park maintenance workers: compensating differentials differences in talent or ability differences in total human capital * Physical therapists earn more than massage therapists.  differences in talent or ability compensating differentials differences in total human capital * Jack, a 22-year-old soccer player, earns more than Jim, who is the same age and has the same level of experience. compensating differentials differences in total human capital differences in talent or ability

The government wants to encourage individuals on welfare to become employed. It is considering two possible incentive programs: a. Give firms $2 per hour for every individual on welfare who is hired. b. Give each firm that hires one or more welfare workers a payment of $1,000 per year, irrespective of the number it hires. To what extent is each of these programs likely to be effective at increasing the employment opportunities of welfare workers? Giving firms $2 per hour for every individual on welfare who is hired O A. is likely to be unsuccessful because firms hire workers such that the marginal revenue product of labor equals the marginal cost of labor, and this approach reduces the marginal cost of labor by $2, decreasing employment. O B. is likely to be unsuccessful because the substitution effect from a wage decrease is negative in terms of hours of work. OC. may be successful or may be unsuccessful depending on whether the income effect or the substitution effect from a wage…

What happens to hours of work when the wage rate falls? Decompose the change in hours of work into income and substitution effects.