Final answer:
An increase in wages when vacation is paid can result in a reduction in hours worked due to the choice between more income or more leisure. Minimum wage workers may face further complexities, with the wage increase leading to fewer hours worked. However, their income would still rise due to the pay raise outweighing the reduction in hours.
Step-by-step explanation:
The problem with an increase in wages for the subsequent year when vacation is paid is that it can lead to a reduction in the number of hours worked. When employees receive a wage increase, they may choose to take more leisure time instead of working additional hours. This is because they now have the choice to receive the benefits of the wage increase in the form of more income or more leisure. Therefore, it is unwise to assume that a wage increase will always result in increased work hours.
Another complexity arises when considering minimum wage workers. These workers may not work full-time for an entire year and may hold part-time jobs for only a few months at a time. In such cases, a wage increase can lead to fewer hours worked, as the higher minimum wage reduces the demand for labor, and employers may reduce the number of hours they want people to work. However, despite working fewer hours, the worker's income would still rise due to the pay raise outweighing the reduction in hours.