Labour Supply and Social Welfare when Utility Depends on a Threshold Consumption Level

John Creedy

The Economic Record, 1997, vol. 73, issue 221, 159-168

Abstract: This paper examines labour supply and social welfare, following Lewis and Ulph (1988>), in a model in which individuals gain a utility premium if they raise their net income up to or above a threshold level. It may thus be worthwhile for some individuals to avoid poverty by supplying a higher amount of labour than in the standard model. Over a range of wage rates, labour supply falls as the wage increases. In this framework, poverty is integral to a social welfare function because it matters to individuals. A special case leads to the use of the headcount poverty measure in an abbreviated social welfare function.

Date: 1997
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