In a proposed cost cutting exercise, a firm offers its workforce the following deal: a
cut in regular wages but a considerable increase for all overtime work. Suppose that
a labourer initially worked L
0 hours at the going real wage of ώ
0 (ώ=w/p) and that
overtime is paid for all hours above L
0.
(a) What will happen to the labour supplied by this individual?
(b) Does your answer depend on whether the worker was initially at the upward
sloping part of his, or her, labour supply or at the backward bending part of it?
(c) Will the firm end up paying an individual more or less than it did originally?
Will workers be better or worse off?
