Questions from Labor Economics

Q: Consider a person who can work up to 80 hours each week

Consider a person who can work up to 80 hours each week at a pretax wage of $20 per hour but faces a constant 20 percent payroll tax. Under these conditions, the worker maximizes her utility by choosi...

Q: The absolute value of the slope of the consumption-leisure budget

The absolute value of the slope of the consumption-leisure budget line is the aftertax wage, w. Suppose some workers earn w for up to 40 hours of work each week and then earn 2w for any hours worked t...

Q: What is the effect of an increase in the price of market

What is the effect of an increase in the price of market goods on a worker’s reservation wage, probability of entering the labor force, and hours of work?

Q: Tom earns $15 per hour for up to 40 hours of

Tom earns $15 per hour for up to 40 hours of work each week. He is paid $30 per hour for every hour in excess of 40. Tom faces a 20 percent tax rate and pays $4 per hour in child care expenses for eac...

Q: Cindy gains utility from consumption C and leisure L. The most

Cindy gains utility from consumption C and leisure L. The most leisure she can consume in any given week is 110 hours. Her utility function is U (C, L) = C × L. This functional form implies that Cindy...

Q: Currently a firm pays 10% of each employee’s salary into a

Currently a firm pays 10% of each employee’s salary into a retirement account, regardless of whether the employee also contributes to the account. The firm is considering changing this system to a 10%...

Q: Shelly’s preferences for consumption and leisure can be expressed as U

Shelly’s preferences for consumption and leisure can be expressed as U(C, L) = (C - 100) × (L - 40) This utility function implies that Shelly’s marginal utility of leisure is C - 200 and her marginal...

Q: Explain why a lump-sum government transfer can entice some workers

Explain why a lump-sum government transfer can entice some workers to stop working (and entices no one to start working) while the earned income tax credit can entice some people who otherwise would n...

Q: In 1999, 4,860 TANF recipients were asked how many

In 1999, 4,860 TANF recipients were asked how many hours they worked in the previous week. In 2000, 4,392 of these recipients were again subject to the same TANF rules and were again asked their hours...

Q: Consider two workers with identical preferences, Phil and Bill. Both

Consider two workers with identical preferences, Phil and Bill. Both workers have the same life cycle wage path in that they face the same wage at every age, and they know what their future wages will...