A country has no welfare program. Then it introduces the following program: every one gets $4000 if they work more than 1000 hours a year (on top of what they earn). The effect of this event will be to ________ the labor force participation and the effect of this event on those were working more than 1000 hours will be to ________ hours of work.

Question

Quizplus · Accepted Answer

The program incentivizes people to join the labor force to work more than 1000 hours to receive the $4000, thus increasing labor force participation. However, those already working more than 1000 hours might reduce their hours since they receive the $4000 regardless, leading to a decrease in hours worked.

A Country Has No Welfare Program