Question

• Discuss at least two self-interested reasons that a top earner might favor policies to redistribute income.
• Discuss why the supply curve of labor for any specific occupation is likely to be upward-sloping, even if, for the economy as a whole, people work fewer hours when wage rates increase.

Answer 1

1.

The first self interested reason is that it will reduce the crime rate in the society as people getting income from different social reform programs, will have funds to feed themselves and their families unless they get a job to maintain their livelihood. It will bring peace in the society and top earners & their families will remain safe and calm. The second self interested reason is that target audience getting redistributed income constitute a huge demand that is catered by the companies of these high earner people. It makes them save their high paying jobs and they keep growing. If income will not be redistributed,  then demand will decrease and top earning people may also lose their jobs. Hence, it is a matter of self interest to let some income redistributed among the needy people. It also prevents class conflict where poor always thinks that rich are responsible for all of their problems.

2.

When wage increases, then people initially like to work more and earn more. It is the substitution effect. But, after a certain level, opportunity cost of work becomes high, then people start opting for the leisure and it is the income effect. Here, substitution effect is going to be bigger than the income effect. It means that the supply curve is upward sloping, meaning workers increase with increase in wage level in the labor market.