Question: Consider the labor market for public school

> KAPC, a pharmaceutical company located in rural Kansas, is finding it difficult to retain its employees, who frequently leave after just six months of working at KAPC for jobs at pharmaceutical companies paying higher wages in Chicago. To address its pro

> The Immigration Reform Act of 2006 provided fewer work visas than were available in previous years for foreign-born college graduates to remain in the United States. The exception is that work visas remained plentiful for college graduates who majored in

> a. Explain how a universal health care system would likely cause a greater amount of efficient turnover. b. Defined-benefit retirement plans promise a fixed amount of retirement income to workers, but in order to receive benefits workers must be vested i

> a. According to standard migration theory, how will skill selection (positive versus negative) change on average as the distance between the source country and the destination country increases? b. Does Table 8-2 lend empirical support for the idea that

> Suppose the immigrant flow from Lowland to Highland is positively selected. In order to mitigate the “brain drain” Lowland experiences as a result of this migration, public officials of Lowland successfully convince all Lowlanders who migrate to Highland

> Suppose a worker with an annual discount rate of 10 percent currently resides in Pennsylvania and is deciding whether to remain there or to move to Illinois. There are three work periods left in the life cycle. If the worker remains in Pennsylvania, he w

> Before 1990, the 80-50 and the 50-20 log wage gap was higher for women than for men (see Figure 7-4). What are some likely reasons for this? Reference Figure 7-4: FIGURE 7-4 Earnings Inequality, 1937–2005 Wojciech Kopczuk, Emmanuel Saez, and Jae Son

> Consider the following (highly) simplified description of the U.S. wage distribution and income and payroll tax schedule. Suppose 50 percent of households earn $40,000, 30 percent earn $70,000, 15 percent earn $120,000, and 5 percent earn $500,000. Margi

> The two points for the international income distributions reported in Table 7-1 can be used to make a rough calculation of the Gini coefficient. Use a spreadsheet to estimate the Gini coefficient for each country. Which three countries have the most equa

> Recently President Obama has tried to focus public attention on inequality. a. What is the difference between income inequality and wealth inequality? b. Most policies that target inequality either target it at the low end of the income distribution by t

> Use the two wage ratios for each country in Table 7-4 to calculate the percent increase in the 90-10 wage ratio from 1984 to 1994. Which countries experienced a compression in the wage distribution over this time? Which three countries experienced the gr

> a. Is the presence of an underground economy likely to result in a Gini coefficient that overstates or understates poverty? b. Consider a simple economy where 90 percent of citizens report an annual income of $10,000 while the remaining 10 percent report

> From 1970 to 2000, the supply of college graduates to the labor market increased dramatically, while the supply of high school (no college) graduates shrank. At the same time, the average real wage of college graduates stayed relatively stable, while the

> What effect will each of the following proposed changes have on wage inequality? a. Indexing the minimum wage to inflation. b. Increasing the benefit level paid to welfare recipients. c. Increasing wage subsidies paid to firms that hire low-skill workers

> Explain why the intergenerational correlation of earnings would likely be higher or lower than average for the following groups or as a consequence of policy changes in the United States: a. Improved educational outcomes for all populations (for example,

> File-sharing software threatens the music industry in part because artists will not be fully compensated for their recordings of songs. Suppose that the government decides that file-sharing software products are legal anyway. a. The almost immediate resu

> Consider two developing countries. Country A, though quite poor, uses government resources and international aid to provide public access to quality education. Country B, though also quite poor, is unable to provide quality education for institutional re

> Suppose the bottom 50 percent of a population (in terms of earnings) all receive an equal share of p percent of the nation’s income, where 0 ≤ p ≤ 50. The top 50 percent of the population all receive an equal share of 1 - p percent of the nation’s income

> Suppose two households earn $40,000 and $56,000, respectively. What is the expected percent difference in wages among the children, grandchildren, and great grand-children of the two households if the intergenerational correlation of earnings is 0.2, 0.4

> Ms. Aura is a psychic. The demand for her services is given by Q = 2,000 - 10 P, where Q is the number of one-hour sessions per year and P is the price of each session. Her marginal revenue is MR = 200 - 0.2 Q. Ms. Aura’s operation has no fixed costs, bu

> Evaluate the validity of the following claim: The increasing wage gap between highly educated and less-educated workers will itself generate shifts in the U.S. labor market over the next decade. As a result of these responses, much of the “excess” gain c

> Some economists maintain that the returns to additional years of education is actually quite small but that there is a substantial “sheepskin” effect whereby one receives a higher salary with the successful completion

> Suppose there are two types of persons: high-ability and low-ability. A particular diploma costs a high-ability person $8,000 and costs a low-ability person $20,000. Firms wish to use education as a screening device where they intend to pay $25,000 to wo

> Suppose people with 15 years of schooling average earnings of $60,000 while people with 16 years of education average $66,000. a. What is the annual rate of return associated with the 16th year of education? b. It is typically thought that this type of c

> Suppose Carl’s wage-schooling locus is given by Years of Schooling………….Earnings 9…………………………………..$18,500 10………………………………….$20,350 11….………………………………$22,000 12…………………………………$23,100 13………………………………..$23,900 14………………………………..$24,000 Derive the marginal rate of r

> a. Describe the basic self-selection issue involved whenever discussing the returns to education. b. Does the fact that some high school or college dropouts go on to earn vast amounts of money (for example, Bill Gates dropped out of Harvard without ever

> Suppose the skills acquired in school depreciate over time, perhaps because technological change makes the things learned in school obsolete. What happens to a worker’s optimal amount of schooling if the rate of depreciation increases?

> Jane has three years of college, Pam has two, and Mary has one. Jane earns $21 per hour, Pam earns $19, and Mary earns $16. The difference in educational attainment is due completely too different discount rates. How much can the available information re

> Peter lives for three periods. He is currently considering three alternative educationwork options. He can start working immediately, earning $100,000 in period 1, $110,000 in period 2 (as his work experience leads to higher productivity), and $90,000 in

> Suppose the decision to acquire schooling depends on three factors—preferences (joy of learning), costs (monetary and psychic), and individual-specific returns to education. a. Explain how each of these factors affects one’s optimal amount of schooling.

> A high school graduate has to decide between working and going to college. If he works, he will work for the next 50 years of his life. If he goes to college, he will be in college for 5 years, and then work for 45 years. In this model, the rate of disco

> a. Draw the wage-schooling locus for someone for whom the returns to schooling decrease through college but increase after college. (Assume college is completed after 16 years of schooling and that one can receive at most 6 years of post-college schoolin

> In 1970, men aged 18 to 25 were subject to the military draft to serve in the Vietnam War. A man could qualify for a student deferment, however, if he was enrolled in college and made satisfactory progress on obtaining a degree. By 1975, the draft was no

> One policy objective of the federal government is to provide greater access to college education for those who are less able to afford it. a. What is the difference between Pell grants and federal student loans? How does the offering of Pell grants and s

> Jill is planning the timing of her on-the-job training investments over the life cycle. What happens to Jill’s OJT investments at every age if a. The market-determined rental rate to an efficiency unit falls? b. Jill’s discount rate increases? c. The gov

> Debbie is about to choose a career path. She has narrowed her options to two alternatives. She can become either a marine biologist or a concert pianist. Debbie lives two periods. In the first, she gets an education. In the second, she works in the labor

> There are two types of farming tractors on the market, the FT250 and the FT500. The only difference between the two is that the FT250 is more prone to accidents than the FT500. Over their lifetime, 1 in 10 FT250s is expected to result in an accident, as

> The Environmental Protection Agency (EPA) wants to investigate the value workers place on being able to work in “clean” mines over “dirty” mines. The EPA conducts a study and finds the average annual wage in clean mines to be $42,250 and the average annu

> Consider Table 5-1 and compare the fatality rate of workers in the mining, construction, manufacturing, and financial industries. Reference Table 5-1: a. What would the distribution of wages look like across these four industries given the compensating

> Consider a competitive economy that has four different jobs that vary by their wage and risk level. The table below describes each of the four jobs. All workers are equally productive, but workers vary in their preferences. Consider a worker who values

> Suppose a drop in the compensating wage differential between risky jobs and safe jobs has been observed. Two explanations have been put forward: Engineering advances have made it less costly to create a safe working environment. The phenomenal success of

> Suppose all workers have the same preferences represented by U = √w – 2x where w is the wage and x is the proportion of the firm’s air that is composed of toxic pollutants. There are only two types of jobs in the economy: a clean job (x = 0) and a dirty

> Suppose there are 100 workers in the economy in which all workers must choose to work a risky or a safe job. Worker 1’s reservation price for accepting the risky job is $1; worker 2’s reservation price is $2; and so on. Because of technological reasons,

> Consider the demand for and supply of risky jobs. a. Derive the algebra that leads from equations (5-4) and (5-5) to equation (5-6). b. Describe why the supply curve in Figure 5-2 is upward sloping. How does your explanation incorporate θ? W

> The hedonic wage function is the locus of points that illustrates the relationship between the wage that workers get paid and job characteristics. All else equal, the more pollutants miners breathe while working in a mine, the worse off the miners are. H

> U.S. Trucking pays its drivers $40,000 per year, while American Trucking pays its drivers $38,000 per year. For both firms, truck drivers average 240,000 miles per year. Truck driving jobs are the same regardless of which firm one works for, except that

> Consider two identical jobs, but some jobs are located in Ashton while others are located in Benton. Everyone prefers working in Ashton, but the degree of this preference varies across people. In particular, the preference (or reservation price) is distr

> Suppose everyone is highly productive, college educated, hard-working, and so on. People still differ in their preferences for jobs—while some would prefer to be doctors than lawyers, others prefer to be lawyers than doctors, and so on—and everyone prefe

> a . On a graph with the probability of injury on the x-axis and the wage level on the y-axis plot two indifference curves, labeled U A and U B , so that the person associated with U A is less willing to take on risk relative to the person associated with

> Politicians who support the green movement often argue that it is profitable for firms to pursue a strategy that is “environmentally friendly” (for example, by building factories that do not pollute and are not noisy) because workers will be willing to w

> Ann owns a lawn-mowing company. She has 400 lawns she needs to cut each week. Her weekly revenue from these 400 lawns is $20,000. Given an 18-inch-deck push mower, a laborer can cut each lawn in two hours. Given a 60-inch-deck riding mower, a laborer can

> A firm faces perfectly elastic demand for its output at a price of $6 per unit of output. The firm, however, faces an upward-sloped labor supply curve of E = 20w – 120 where E is the number of workers hired each hour and w is the hourly wage rate. Thus,

> Let total market demand for labor be represented by ED = 1,200 – 30w where ED is total employment and w is the hourly wage. Suppose 750 workers supply their labor to the market perfectly in-elastically. How many workers will be employed? What will be the

> 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

> An economy consists of two regions, the North and the South. The short-run elasticity of labor demand in each region is -0.5. Labor supply is perfectly inelastic within both regions. The labor market is initially in an economy wide equilibrium, with 600,

> a. What happens to wages and employment if the government imposes a payroll tax on a monopsonist? Compare the response in the monopsonistic market to the response that would have been observed in a competitive labor market. b. Suppose a firm is a perfect

> Suppose the supply curve of physicists is given by w = 10 + 5 E, while the demand curve is given by w = 50 - 3 E. Calculate the equilibrium wage and employment level. Suppose now that the demand for physicists increases to w = 70 - 3 E. Assume the market

> In the United States, labor supply tends to be inelastic relative to labor demand, and according to law, payroll taxes are essentially assessed evenly between workers and firms. Given the above situation, are workers or firms more likely to bear the addi

> A number of empirical studies suggest that labor demand is very elastic while labor supply is very inelastic. Assume too that payroll taxes are about 15 percent and legislated to be paid half by the employee and half by the employer. a. What would happen

> Suppose the Cobb-Douglas production function given in equation 4-1 applies to a developing country. Instead of thinking of immigration from a developing to a developed country, suppose a developed country invests large amounts of capital (foreign direct

> Consider the policy application of environmental disasters and the labor market that was presented in the text. a. How do labor demand and labor supply typically shift following a natural disaster? b. The data on changes in employment and wages in Table

> A monopsonist’s demand for labor can be written as VMPE = 40 - 0.004ED. Labor is supplied to the firm according to w = 5 + 0.01ES. Thus, the firm’s marginal cost of hiring workers when it hires off of this supply schedule is MCE = 5 + 0.02ES. a. How much

> In the cobweb model of labor market equilibrium (Figure 4-17), the adjustments in employment can be small with adjustment being fast, or the adjustments in employment can be large with adjustment being slow. The result that comes about depends on the ela

> Figure 4-6 shows that a payroll tax will be completely shifted to workers when the labor supply curve is perfectly inelastic. In this case, for example, a new $2 payroll tax will lower the wage by $2, will not affect employment, and will not result in an

> Figure 4-9 discusses the changes to a labor market equilibrium when the government mandates an employee benefit for which the cost exceeds the worker’s valuation (panel a) and for which the cost equals the worker’s val

> In a particular industry, labor supply is ES = 10 + w and labor demand is ED = 40 -4w, where E is the level of employment and w is the hourly wage. a. What are the equilibrium wage and employment if the labor market is competitive? What is the unemployme

> A firm’s technology requires it to combine 5 person-hours of labor with 3 machine hours to produce 1 unit of output. The firm has 15 machines in place and the wage rate rises from $10 per hour to $20 per hour. What is the firm’s short-run elasticity of l

> What type of instrumental variable is needed to estimate the labor supply elasticity? Can you think of any historical instances that would allow for this?

> What happens to employment in a competitive firm that experiences a technology shock such that at every level of employment its output is 200 units per hour greater than before?

> Consider a firm for which production depends on two normal inputs, labor and capital, with prices w and r, respectively. Initially the firm faces market prices of w = 6 and r = 4. These prices then shift to w = 4 and r = 2. a. In which direction will the

> Union A wants to represent workers in a firm that would hire 20,000 workers if the wage rate is $12 and would hire 10,000 workers if the wage rate is $15. Union B wants to represent workers in a firm that would hire 30,000 workers if the wage rate is $20

> Figure 3-18 in the text shows the ratio of the federal minimum wage to the average hourly manufacturing wage. Figure 3-18: a. Describe how this ratio has changed from the 1950s to the 1990s. What might have caused this apparent shift in fundamental eco

> Consider a production model with two inputs—domestic labor (EDom) and foreign labor (EFor). The market is originally in equilibrium in that Then a wage shock occurs to cause a substantial amount of outsourcing. Specifically, as a resu

> Draw on a single graph the time to transition to a new labor equilibrium when a firm faces variable adjustment costs for the following two firms. a. A trucking firm currently employs 100 drivers. If the economy enters an expansionary period, the firm wou

> Which one of Marshall’s rules suggests why labor demand should be relatively inelastic for public school teachers and nurses? Explain.

> How does the amount of unemployment created by an increase in the minimum wage depend on the elasticity of labor demand? Do you think an increase in the minimum wage will have a greater unemployment effect in the fast-food industry or in the lawn-care/la

> Several states set their own minimum hourly wage above the federal minimum wage. To offset higher minimum wages, many of these states offer firms tax incentives that lower the cost of borrowing and/or lower the firm’s tax liability on profits. In general

> Suppose the hourly wage is $10 and the price of each unit of capital is $25. The price of output is constant at $50 per unit. The production function is f(E,K) = E½K ½, so that the marginal product of labor is MPE = (½)(K/E) ½ . If the current capital

> Suppose there are two inputs in the production function, labor and capital, and these two inputs are perfect substitutes. The existing technology permits one machine to do the work of three workers. The firm wants to produce 100 units of output. Suppose

> 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 be. Leisure and consumption are both normal goods. a.

> 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 of work during the previous week. The remaining 468 i

> 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 not work to start working (and entices no one to stop w

> 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 utility of consumption is L - 40. There are 110 (non-s

> 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% match, meaning that the firm will match, up to 10% of

> 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’s marginal rate of substitution is C/L. Cindy receive

> 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 each hour he works. Tom receives $80 in child support pay

> 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?

> 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 thereafter (called overtime). Other workers may earn w

> 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 choosing to work 50 hours each week. The government proposes

> Over the last 100 years, real household income and standards of living have increased substantially in the United States. At the same time, the total fertility rate, the average number of children born to a woman during her lifetime, has fallen in the Un

> Presently, there is a minimum and maximum social security benefit paid to retirees. Between these two bounds, a retiree’s benefit level depends on how much she contributed to the system over her work life. Suppose Social Security was changed so that ever

> A worker plans to retire at the age of 65, at which time he will start collecting his retirement benefits. Then there is a sudden change in the forecast of inflation when the worker is 63 years old. In particular, inflation is now predicted to be higher

> Under current law, most Social Security recipients do not pay federal or state income taxes on their Social Security benefits. Suppose the government proposes to tax these benefits at the same rate as other types of income. What is the impact of the prop

> How many hours will a person allocate to leisure activities if her indifference curves between consumption and goods are concave to the origin?

> Consider a small island economy in which almost all jobs are in the tourism industry. A law is passed mandating that all workers in the tourism industry be paid the same national hourly wage, even though workers differ in their skills and effort. In fact

> During the debate over a federal spending bill, Senator A proposed changing the schedule for paying out unemployment benefits to be one where benefits were doubled but offered for half the current duration (so that UI benefits would expire after 13 weeks

> Suppose the government proposes to increase the level of UI benefits for unemployed workers. A particular industry is now paying efficiency wages to its workers in order to discourage them from shirking. What is the effect of the proposed legislation on

> Compare two unemployed workers: one is 25 years old while the other is 55 years old. Both workers have similar skills and face the same wage offer distribution. Suppose that both workers also incur similar search costs. Which worker will have a higher as

> a. How does the exclusion of nonworking welfare recipients affect the calculation of the unemployment rate? Use Tables 525 and 569 of the 2008 U.S. Statistical Abstract to estimate what the 2005 unemployment rate would have been if welfare recipients had

> Suppose the marginal revenue from search is MR = 50 - 1.5w where w is the wage offer at hand. The marginal cost of search is MC = 5 + w a. Why is the marginal revenue from search a negative function of the wage offer at hand? b. Can you give an economic