a) In a recent study of New York Taxi Drivers who choose their own work hours and who experienced two permanent fare increases instituted by the N.Y. City Taxi and Limousine Commission, a Princeton labour economist estimated the elasticity of the labour supply of taxi drivers to be about -0.2.
(i) Draw the labour supply curve for taxi drivers in New York City based on this estimate. Note: Since you have no data on wage rates and hours of work supplied, you are expected only to provide a rough approximation of the supply curve.
(ii) Assume that in a similar study, the elasticity value found for Toronto taxi drivers was -0.95. Would the supply curve for Toronto taxi drivers be steeper or flatter than the one of their New York counterparts? Explain.
For which of the two taxi driver groups would the income effect of the fare increase be larger?
b) The choice whether to participate in the labour force or not is reduced in the neoclassical decision model to a comparison between one'e market wage with one's reservation wage. Using this framework, indicate the expected impact on the labour force participation of women of changes in each of the following factors, all other things held constant:
(i) allowing day care expenses to be tax deductible;
(ii) an increase in commuting time to work (assume that the commuting time is not compensated by the employer);
(i) An increased tendency to have children spaced more closely.