hw1 - 180.351 Labor Economics Homework Assignment 1 Yuya...

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180.351 Labor Economics Homework Assignment 1 Yuya Takahashi February 9 2016 Solve the following 3 big questions. The full score is 100. Students are encouraged to work as a group, but each student should write her/his own answer. The due is Feb. 18 in class. 1. (36 points in total) Answer the following questions (drawing a graph helps a lot!). (a) Consider the wage regression we discussed in class: ln w i = ° + ±s i + ² i + " i ; where s i is the number of years of schooling, ² i measures the true unobserved ability, and " i is a pure error which is not correlated with s i : If you regress ln w i on s i by OLS, would you get a consistent estimate for ± ? If yes, justify your answer. If no, explain why not. (b) Suppose that the worker°s wage is initially $8 per hour and that he works 20 hours per week. Now the wage increases to $10 per hour and the worker decides to work 30 hours per week. Calculate the labor supply elasticity of this worker. (c) Recall the analysis of the impact of a wage increase on hours of work. Suppose that for an individual an increase in wage did NOT change hours of work. Using a graph, explain how this happened.
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