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Labor EconomicsEC 356 Problem Set 2October 19, 20161.You estimate a hedonic wage regression W = 100 D + 3000 Ed + 300 Exp – 5 Exp2where = death rate per 100,000 for workers in the individual’s occupation[10 points]Ed = years of schooling for the individualExp = Experience = Age of the individual – Ed – 6 Exp2= Experience squareda.What is a hedonic wage regression? Db.What is the value of life implied by this regression? Explain your answer.c.At what age does the wage of a college graduate (Ed = 16) reach a maximum? 2.The demand for labor is ED= 30 – 4W and the supply of labor is ES= 5 + W. Then the government imposes a payroll tax on firms which reduces the demand curve perceived by workers to ED= 25 – 4W.[15 points]a.What is equilibrium employment E and the wage W before the tax is imposed?b.What are E and W after the tax is imposed? c.What are firms’ total labor costs per worker?Find total labor cost along the original demand curve. d.What are elasticities of labor supply and demand?
e.What are tax revenues? f.How much surplus is lost by firms? By workers? Which loss is bigger?