Chapter 3 - Labour supply and public policy. The main contents of this chapter include all of the following: Labour supply factors, government transfer programs, welfare programs, workers compensation, child-care subsidies,.and other contents. | Chapter Three Labour Supply and Public Policy: Work Incentive Effects of Alternative Income Maintenance Schemes Created by: Erica Morrill, Fanshawe College Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus Labour Supply Factors Government transfer programs Welfare programs Workers compensation Child-care subsidies Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Income Maintenance Schemes Designed to supplement low incomes No single program can address the multiple reasons for low income Difficult for policy makers to design the ideal program Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Universal Programs Administratively simple Everyone receives the same transfer regardless of income Results in raising income and eliminating poverty Expensive Benefits non-poor Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Perfect Targeting Cheaper method Individuals are given exactly enough of a transfer to reach the poverty line Only those below poverty line would receive transfer . | Chapter Three Labour Supply and Public Policy: Work Incentive Effects of Alternative Income Maintenance Schemes Created by: Erica Morrill, Fanshawe College Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus Labour Supply Factors Government transfer programs Welfare programs Workers compensation Child-care subsidies Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Income Maintenance Schemes Designed to supplement low incomes No single program can address the multiple reasons for low income Difficult for policy makers to design the ideal program Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Universal Programs Administratively simple Everyone receives the same transfer regardless of income Results in raising income and eliminating poverty Expensive Benefits non-poor Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Perfect Targeting Cheaper method Individuals are given exactly enough of a transfer to reach the poverty line Only those below poverty line would receive transfer Individuals below poverty line are guaranteed to be topped up May cause individuals to reduce work effort Creates a disincentive to earn income Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Permanent or Transitory Design features to compensate for low wages or lack of hours Distinction between permanent and transitory are difficult to isolate Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Characteristics of a Demogrant Lump sum transfer Income grant Specific to a demographic group Old Age Security (OAS) Universal Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. demogrant Figure Work Incentive Effects of a Lump Sum Demogrant 0 U0 T E0 -income constraint shifts up by amount of the grant - slope is the same and there is no substitution effect - if working time is not altered the equilibrium is E1 Income Leisure U1 E1 Y1 Ud Ed Yd Chapter 3- © 2002 McGraw-Hill Ryerson Ltd. Work Incentive Effects of a Lump Sum Demogrant No substitution effect Work incentives are reduced Pure leisure -
