A country has no welfare program.Then it introduces the following program: everyone 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 who were working more than 1000 hours will be to ________ hours of work.

Question

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Introducing a $4000 incentive for working more than 1000 hours a year is likely to increase labor force participation as more people would be motivated to work to receive the bonus. However, for those already working more than 1000 hours, this could lead to a decrease in hours worked as they might reduce their working hours once they meet the threshold, knowing they will receive the bonus regardless.

A Country Has No Welfare Program