Description
Use the labor/leisure model to analyze the effect of hours of work of a new law requiring employers to pay 60% extra for each hour worked over 40 per week, while there was previously no such requirement.
a) First draw a budget constraint for someone earning $10 per hour. What happens to the budget constraint with the new 60% extra requirement? Draw the new budget constraint.
b) Given your answer to (a), draw an indifference curve so that, given the original budget constraint, the person is working 40 hours per week. What happens to hours of work given the new budget constraint? Draw an indifference curve to show this.
Which groups are most likely to be affected by the change?
Which groups are least likely?
Have hours of work in general increased or decreased as a result of the overtime law? Explain.
