The following equations have been estimated by Ordinary Least Squares (OLS), where Y denotes annual earnings, P job evaluation points, and the subscripts m and f denote male and female respectively:
The following equations have been estimated by Ordinary Least Squares (OLS), where Y denotes annual earnings, P job evaluation points, and the subscripts m and f denote male and female respectively:
Ym = 5000 + 100Pm
Yf = 4000 + 80Pf
Assume the average job evaluation score was 300 points in male-dominated jobs and 200 points in female-dominated jobs.
What is the average pay in male-dominated jobs and in female-dominated jobs?
Use a Oaxaca decomposition to determine the average pay differential between male and female dominated jobs into two components: a portion attributable to the difference in job evaluation points (valued according to the male pay for such points) and a portion attributable to differences in pay for the same job evaluation points.
Use that same decomposition, but this time evaluate the differences in job evaluation points according to the female pay for such points.
Q2.
We can produce widgets with two inputs – labour and capital. The two inputs are perfect substitutes. Current technology methods allow one machine to do the work of three labourers. The widget factory wishes to produce one hundred units of output. The price of capital is $750 per machine per week. What combination of inputs will the firm use if the weekly salary of each worker is $300? What combination of inputs will the firm use if the weekly salary of each worker is $225?
Draw isocost line to help structure your thinking.
Q3.
A monopsonist’s demand for labor can be written as VMPE = 40 – 0.005ED. 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 labor does the monopsony firm hire and at what wage when there is no minimum wage?
B. How much labor does the monopsony firm hire and at what wage when it must pay a minimum wage of $25?
Q4.
Tim has the ability to work up to 80 hours each week at a pre-tax wage of $20 per hour but faces a constant 20% payroll tax. Thus, Tim maximizes his utility by choosing a work week of 50 hours each week. The government imposes a negative income tax; everyone is given $300 each week and anyone can supplement their income further by working. In order to cover the negative income tax, the payroll tax rate will go up to 50%.
A) Draw Tim’s original budget line and his budget line under the negative income tax.
B) Show that Tim would choose to work fewer hours if the negative income tax is adopted.
C) Will Tim’s utility be greater under the negative income tax? Please explain.
Q5
Mark can work up to 80 hours each week at a pre-tax hourly wage of $20 but faces a constant 20 percent tax on his earnings. Thus, Mark maximizes his utility by choosing to work 50 hours per week. The government proposes a negative income tax whereby everyone is given $300 per week and anyone can supplement their income further by working. To pay for the negative income tax, tax on earnings will be increased to 50 percent.
On a single graph, draw Mark’s original budget line and his budget line under the negative income tax.
Show that Mark will work fewer hours if the negative income tax is implemented
Will Mark’s utility be greater under the negative income tax? Discuss your answer.
Q6.
The snowboard industry has the following labour supply is ES = 150 + 10w and labour demand is ED = 350 – 10w, where E is the level of employment in 1,000s of workers and w is the hourly wage.
If the labour market is competitive, then what is the equilibrium wage and employment? What is the unemployment rate?
Let’s pretend the government asks you to examine the impact of implementing a minimum hourly wage of $12. What would happen to the employment level? How many additional workers would want a job at the minimum wage? What is the unemployment rate?
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