代做ECON6009 Economics of the Labour Market Problem Set 1: Introduction + Review of Micro Semester 1,

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ECON6009 Economics of the Labour Market

Problem Set 1: Introduction + Review of Micro

Semester 1, 2024

Problems for week 2

Problems with *: solution (or ideas for a solution) to be presented by problem set group 1; ** by PS group 2 (see Canvas) .

0. Recap - Why is the labour market different from other markets (goods, commodities)?

In the below questions, you can generally assume the labour market is a perfectly competitive market that can be analysed using demand and supply analysis. Draw diagrams whenever possible to support your answer.

1. Read the article ”What’s happening in the Labour Market? by Ross Gittins

(http://www.rossgittins.com/2016/12/whats-happening-in-labour-market.html). The article touches upon a number of key issues and definitions that we will be discussing over the next few weeks. Summarize the main ideas from the article.

2*. Which of these is an example of the failure of the market to achieve economic efficiency?

(a) Alpha Industries is willing to pay $55,000 per year to hire a computer programmer. Dean, a qualified computer programmer, would gladly give up his job as a waiter for a computer programming job paying at least $45,000, but is unaware of Alpha’s opening.

(b) Ace Engineering is willing to pay Diane $11 per hour, but Diane is willing to work for $10 per hour, so Ace hires her for only $10 per hour.

(d) Firms and employees successfully achieving all mutually beneficial transactions.

3* . If every carpenter wants $10 more per hour of work, then wages for carpenters will:

(a) Go up by less than $10.

(b) Go up by $10.

(d) Go down as employment falls.

4. It has been said that CEOs (Chief Executive Officers who are in charge of their firms) are overpaid. What would be evidence that they are, in fact, overpaid?

5. Consider the following statement. “An increase in the supply of labour will cause the wage to fall. With a decrease in the wage, demand for labour will increase, and an increase in the demand for labour tends to push the wage up. Therefore, an increase in labour supply will result in practically no long-run change in the wage because labour demand will increase also.”

(a) Is this an accurate assessment of how the labour market operates? If not, what is wrong with the reasoning in this statement?

(b) Carefully explain how an increase in the supply of labour disturbs the equilibrium. What kinds of things cause labour supply to increase?

6*. Using supply and demand analysis, determine the impact of the following changes on wages and employ- ment in a given occupation:

(a) A decrease in the danger in that occupation

(b) An increase in product demand

7**. Unions can raise wages paid to their members in two ways:

(a) negotiate a wage rate above the market clearing wage (where employers can decide about employment at the negotiated wage),

(b) construction unions often have agreements that require the management to hire only union members (but have no control over entry into the union). Hence unions can raise wages by limiting supply.

Depict both situations graphically (in a competitive labour market diagram) and describe the resulting market outcome.

8. Suppose the supply curve for welders is Ls = 20000 + 350w, and the demand curve for welders is Ld = 100000 − 150w, where L is the number of welders and w is the daily wage.

(a) Plot the supply and demand curves.

(b) What are the equilibrium wage and employment levels in this market?

(c) Now suppose that at any given wage, 20 000 more workers are willing to work as welders. Plot the new supply curve and find the new wage and employment level. Does employment grow with 20 000? Why or why not?

9. A regression estimates that workers’ hourly productivity (P), measured in units of output, is related to hourly wage (W) as follows: Pi = 4.5+0.2Wi (where subscript i reflects a variable at individual level). This indicates that, on average:

(a) a worker will produce 2 units when the firm pays a wage of $10.

(b) a firm raising their wage by $10 will increase worker’s productivity by 2 units.

(d) a worker will produce 4.5 units.

Motivate/explain your answer.

10**. You have collected data on 13 randomly selected teenage workers in the fast-food industry. Suppose you have information on wage (W), age (A) and whether they work part-time or full-time (F). Variable Fi is equal to 1 if the worker is employed full-time and equal to zero otherwise. With this information, you estimate the following relationship between wages, age and full-time employment:

Wi = −0.5 + 0.25Ai + 0.75Fi

(you can assume the coefficients are (statistically) significantly different from zero). How much is a 20-year- old expected to earn when working full-time? How much is a 20-year-old working part-time expected to earn? How large is the difference? Motivate/explain your answer.

11**. A regression of W = a + bX where W is wages and X is hours worked per week yielded a t-statistic

of 0.75 for b. Statistically speaking, this result suggests that

(a) hours worked are probably positively related to wages.

(b) hours worked are probably related to wages in a minor way.

(d) we cannot reject the hypothesis that hours worked are unrelated to wages.

Motivate/explain your answer.

12. Suppose the working age population in Absurdistan is 50 million, the employment to (working-age) population ratio is 0.6, and the number of unemployed people is 10 million. What are the unemployment rate and labour force participation rate in Absurdistan?

(a) Unemployment rate: 10%, Participation rate: 75%

(b) Unemployment rate: 20%, Participation rate: 60%

(d) Unemployment rate: 25%, Participation rate: 75%

(e) We need more info to pin down the unemployment and participation rates.