chapter  1
24 Pages

Budget Lines and Labour Supply Incentives

WithMichael Beenstock

This chapter examines the various building blocks for constructing budget lines and considers the implications of budget lines for labour supply decisions. It explores what happens to the budget line ATX when Supplementary Benefit (SB) or Unemployment Benefit is provided by the authorities. The budget lines describe the set of choices between income and leisure that decision units face. The indifference curves describe the preferences of units in terms of income and leisure. The 1980s have witnessed a renewed interest in the economics of social security and work incentives. If a person is in receipt of no income at all he and his family receive SB. The level of SB depends on marital status, number of children and housing costs. Once the disregards are used up SB is reduced penny for penny with net income. The chapter also presents an overview of the key concepts discussed in this book.