when workers wages rise, their decision about how much time to spend working is
ID: 1185368 • Letter: W
Question
when workers wages rise, their decision about how much time to spend working is affected in two conflicting ways- as you may have learned in courses in microeconomics. The income effect is the impulse to work less, because greater incomes mean workers can afford to consume more leisure. The substitution effect is the impulse to work more, because the reward for working and additional hour has risen (equivalently, the opportunity cost of leisure has gone up). Apply these concepts to Blanchards's hypothesis about American and European tastes for leisure. On which side of the Atlantic do income effects appear larger than substitution effects? On which side do the two effects approximately cancel? Do you think it is a reasonable hypothesis that tastes for leisure vary by geography? Why or why not?Explanation / Answer
Well, on one hand they could say, "I don't have to work as much to make the same amount of money, and that amount of money was just fine, so I'll work less." On the other hand, they could say, "I'm making more money now, that means if I work even more, I'll make more than I ever could before." They may also say, "If I keep working the same amount, I'll make more, and that's good because I was working a good amount before."
For many jobs this isn't a decision, because they are eithersalaried employeesand it doesn't matter how many hours they work (they get the same pay no matter what) or they are hourly but expected to work a normal 40 hour week (many companies try to keep overtime to a minimum, but also expect their employees to work at least 40 hours). So for part time hourly jobs, the split decisions that come from increased wages is at its most diverse.
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