ABSTRACT
Conventional economic wisdom predicts that social welfare, serves to increase unemployment by reducing the incentive of economic agents to search for and engage in either short- or long-term market employment. Social welfare represents a net income transfer to welfare recipients, which also serves to reduce society's level of aggregate and per capita GDP. The traditional model implicitly assumes that welfare recipients do not work because of their strong preference for leisure or their weak work ethic that is facilitated by the welfare system. The conventional model of income-leisure choice that underlies the conventional model of labor supply makes assumptions that are incorrect behaviorally while also ignoring important determinants of labor supply, which go well beyond simple trade-offs between market income and leisure. The conventional model of the firm presumes that firms are typically performing as well as possible in terms of the quantity and quality of effort inputs per unit of time and productivity maximizing technology.
