Econ 339 Winter 2008 Problem Set 2

Econ 339 Winter 2008 Problem Set 2 - 5 Assume that the...

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Econ 339 Winter Quarter 2008 Problem Set 2 Due Date: 1/23/2008 Solve the following Problems. Show your work. 1. Book Problems (p. 66): 11, 12 2. Why are single mothers eligible for EITC while single men are not? 3. Think hard about your paper topic. There are only 4 weeks left before you have to submit the topic and an abstract. Name a few possible topics here. 4. Before EITC John was working 40 hours per week at a wage of $10 per hour. Now assume that the government enacts a law that makes John eligible for EITC. Assume the tax credit is 50% of the wage with a maximum of $100. The maximum credit is maintained until income reaches $500 dollars and is then phased out by taxing the individual 50 cents per dollar earned. a. Sketch the budget constraint. b. Will John work more are less than 40 hours after EITC is introduced? Explain.
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Unformatted text preview: 5. Assume that the decision to participate in the labor market only depends on the first letter of the last name of an individual and some random error term (for example, A-L participate, M-Z don’t, 1 i i participate Letter γ ε = + ⋅ + ). You want to estimate the labor supply elasticity. Naturally, you will only be able to use individuals in your analysis that work. Will your estimates be unbiased? (yes, this is a hard question) 6. Explain why an incorrectly measured hours variable will lead to biased estimates of the labor supply elasticity. 7. Is there a welfare policy that includes payments to low-skilled workers that does not include a detrimental effect on work incentives?...
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This note was uploaded on 12/04/2008 for the course ECONOMICS 339 taught by Professor Habermalz during the Winter '07 term at Northwestern.

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