Reference no: EM133067400

Employees at the QuickFast car factory have access to a generous retirement pension once they turn 65. Employees can work a maximum of 365 days a year, and they earn $150 per day. Once they turn 65, employees receive a retirement benefit of $25,000 per year if they stop working completely. If they continue to work after age 65, their retirement benefit is reduced by $0.40 for every dollar they earn at work. Employees at the QuickFast car factory have no other non-labour income.

What effect do you expect this pension to have on employees' labour supply decisions? Do you expect them to work more or less after they turn 65? Explain your answer with reference to substitution and income effects, and illustrate your answer with a carefully labelled graph.