3) One way of aiding low-income families is to increase the minimum wage. An alt

Question

3) One way of aiding low-income families is to increase the minimum wage. An alternative is to provide a direct grant of nonlabor income. Compare the impact of these 2 options on work incentives 3) One way of aiding low-income families is to increase the minimum wage. An alternative is to provide a direct grant of nonlabor income. Compare the impact of these 2 options on work incentives 3) One way of aiding low-income families is to increase the minimum wage. An alternative is to provide a direct grant of nonlabor income. Compare the impact of these 2 options on work incentives

Explanation / Answer

Increasing the minimum wage is setting the wage level much above the equilibrium market wage . This prevents the wage rate to fall beyond this level to market equilibrium . So minimum wage is only applicable to workers who are employed or are working . So workers will have more incentive to find jobs and work harder to gain from minimum wages .

Nonlabor income refers to income from any other source apart from labor supply . So direct grant of nonlabor income is the additional income granted without work . So here a worker will lose incentive to work . Since the total income increases without total effort increasing , so a worker will substitute leisure for work .

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