Assignment:
Directions: Answer all questions. Be sure your answers are complete and well written. Show your work in all calculations. All work on this exam must be your own. You are permitted to use your text and any other reference materials you choose. Discussing these question answers or related topics with any other classmate or individual is considered academic dishonesty and will be dealt with accordingly (see policy statement in our syllabus).
1. Suppose the adult population of a city is 9,823,000, and there are 3,340,000 persons who are not in the labor force and 6,094,000 who are employed.
a. Calculate the number of adults who are in the labor force and the number of adults who are unemployed.
b. Calculate the labor force participation rate and the unemployment rate.
2. The output of workers at a factory depends on the number of supervisors hired (see below). The factory sells its output for $0.50 each, it hires 50 production workers at a wage of $100 per day, and needs to decide how many supervisors to hire. The daily wage of supervisors is $500 but output rises as more supervisors are hired, as shown below. How many supervisors should it hire?
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Supervisors
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Output (units per day)
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|
0
|
11,000
|
|
1
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14,800
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|
2
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18,000
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3
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19,500
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4
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20,200
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5
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20,600
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3. Calculate the own-wage elasticity of demand for Occupations a, b, and c below. ED and W are the original employment and wage. are the new employment and wage. State whether the demand is elastic, inelastic, or unitary elastic. Which occupation would a labor union be most effective in organizing? Why?
a. %ΔED= - 5, %ΔW= +10
b. ED= 50, W= 7
E'D= 40, = 8
c. ED= 80, W'=8
E'D= 100, W'= 6
5. Suppose a single parent can work up to 16 hours per day at a wage rate of $10.00 per hour.
Various income maintenance programs have been developed to assure a minimum level of income for low-income families, such as Aid to Families with Dependent Children (AFDC). One of the problems with AFDC is that benefits were reduced by $1 for every dollar earned, which creates a no-work incentive for those who are eligible. An alternative income maintenance program is Temporary Assistance for Needy Families (TANF), which also offers a "no-work" benefit but a smaller reduction in wages for every dollar earned. The subsidy ends when the money income with program participation equals the money income earned without the program. A simplified version of this type of program is one that would give this single parent a $40 grant accompanied by a benefit reduction of 33 cents for every dollar earned.
a. Draw the daily budget constraint without any program participation for the single parent described above.
b. On the same graph, draw the daily budget constraint under TANF for the single parent described above. At what level of money income does the subsidy end? How many hours of work would this be? Discuss the effect of program participation on work incentives.
c. On the same graph, draw the daily budget constraint under AFDC for the single parent $40 grant accompanied by a benefit reduction of one dollar for every dollar earned. Show how hours worked change in the graph for your representative decision maker.
6. Given the elasticity of supply estimates in the table above answer the following:
a. In a two-earner family with children what impact will a 10 percent increase in the wage of the head of household have on the labor supply of the head? Show this in a basic income-leisure graph. Be sure to show the budget constraint, indifference curves and the hours worked before and after the wage increase. In your diagram show the income and substitution effect of the wage increase. Which effect is greater? Is this a backward-bending supply curve?
b. In a two-earner family with children what impact will a 10 percent increase in the spouse's wage have on the spouse's labor supply? Is this a backward-bending supply curve?
c. For unmarried menand unmarried women (no children)what impact will a 10 percent increase in the wage have on the labor supply? Show this in a basic income-leisure graph. Be sure to show the budget constraint, indifference curves and the hours worked before and after the wage increase. In your diagram show the income and substitution effect of the wage increase. Which effect is greater? Is this a backward-bending supply curve?
d. Using Becker's labor supply model including household production explain why in two-earner families any increase in wage rates (for head of household or spouse) willdecrease labor supply for both head and spouse. How do the presence of children in two-earner families impact labor supply elasticities of head and spouse?
7. Let total market demand for labor be represented by ED = 1,000 - 50w where ED is total employment and w is the hourly wage.
(a) What is the market clearing wage when total labor supply is represented by ES = 100w - 800? How many workers are employed? How much producer surplus is received at the equilibrium wage?
(b) Suppose the government imposes a minimum wage of $16. What is the new level of employment? How much producer surplus is received under the minimum wage?
8. Analyze the impact of the following changes in labor market conditions for schoolteachers. Explain your reasoning carefully and show your results using a supply-demand graph. Does the equilibrium wage increase or decrease? Does the employment of teachers increase or decrease?
a. Demographics show there will be an increase in the number of school-aged children over the next few years.
b. The price of computer equipment used in the classroom decreases (assume teachers and computers are gross complements).
c. Teacher's unions are effective in negotiating a wage rate that is above the equilibrium wage.
d. There is an increase in the productivity of teachers.
e. There is an increase in the wage rate for teacher's aides (assume teachers and teacher's aides are gross substitutes).
9. Using Marshall's laws of demand for labor:
a. Analyze the effect that increased airline competition should have on the bargaining strength of airline pilot's unions and the wage elasticity of demand for pilots. Explain your reasoning carefully,
b. Analyze how increased emphasis on free global trade (such as, the elimination of quotas and tariffs) would affect the power of garment workers unions in the U.S. and the wage elasticity of demand for garment workers. Explain your reasoning carefully.