Yolanda is a licensed marriage counselor in Oklahoma and earns an annual salary of $40,000 there. She recently learned that marriage counselors earn $55,000 per year in Kansas, and she is thinking of moving. It would cost her $10,000 to move her belongings, and she would have to work for free for one year (as an apprentice) in order to receive a license to practice marriage counseling in Kansas. She plans to retire T years from now, and the interest rate is r.
1. Assuming that she is only concerned about the financial ramifications of her decision, write down the present value calculation Yolanda must make to determine whether the move is worthwhile or not.
2. Is Yolanda more likely to make the move if she 50 years old or if she is 55 years old? Why?
3. If the States of Kansas and Oklahoma reached a reciprocity agreement to accept counseling licenses issues by one another, how would (i) the elasticity of labor supply, and (ii) the equilibrium wage differential change? Explain.