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Economic Impact of the Added Worker Effect

Satisfactory Essays
Economic Impact of the Added Worker Effect

1. Income Effect: the income effect is the response of desired hours of leisure to changes in one’s income. If wages are held constant and income increases then the desired hours of work will decrease. The relevance of the income effect in regards to the study of labor economics is very important. Employers, economists and Government institutions have the ability to determine the amount of time workers’ will seek to either choose more hours of work or more hours of leisure. This can be used to estimate the average number of work and leisure hours a sample of workers will utilize in a year or during a trend.

2. Added Worker Effect: The added worker effect occurs when there is a family that has only one bread winner that loses his or her job. Because of the lost income the family may choose for the recently unemployed family member to stay home while the other family member seeks employment. This then produces a new worker in the work force which is the added worker effect because the person was not already in the work force or seeking employment. The added worker effect is crucial to economists and the Government to determine the unemployment rate during times of recession as well as the rate of new entries into the work force.

3. Compensating Wage Differentials: Compensating wage differentials determines the level of risk an employee and employer chooses to offer. If an employer has an unsafe work place then their cost of reducing risk is relatively low compared to an employer who already has a safe work environment. At the same point, a worker chooses the level of risk he/she will assume in relation to the offered rate of pay. This is very important in the study of labor economics as it shows how workers and employers are affected when the state and Federal government pass job safety laws that demand higher levels of safety measures implemented in the workforce.

Short Problems

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2. a) Limnologist 472000 = 449523.81-15000 = 434523.81

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Chef 500000 = 476190.48- 40000 = 436190.
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