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laborexam3sum04sol

# laborexam3sum04sol - Final Exam Answers There are ten...

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Economics 421 Spring 2004 Lich - Tyler Final Exam Answers There are ten short - answer questions worth 4 points apiece. There are five long - answer questions worth 12 points apiece. Pace yourself, and good luck. 1. Suppose that the population of this country is 300 million. Of these people, 75 million are not working, but only 25 million are considered unemployed. Calculate the labor force participation rate and the unemployment rate . Population = 300; Unemployed + Out of Labor Force = 75; Unemployed = 25. LFPR = LF / P = ( P - OLF ) /P=250/300= 5/6. UR = U / LF = 25 / 250 = 1/10. 2. The Swedish government previously allowed husbands and wives to take a combined paternity and maternity leave of two years to take care of children. Because wives often took the full two years from work and husbands took no time off from work, this government changes the policy so that spouses must take off equal time for childcare. From the perspective of household production, does this policy make sense? Why or why not? No, this is not sensible. The two - person model of household production predicts that it is never optimal to have both household members splitting their time between working and household production ( childcare, in this case ) . 3. Ned’s annual earnings are determined by the function \$ Y = \$30,000 + \$6,000 ! S , where S is the number of years of education he acquires after high school. At an interest rate of 10 % , how much education should he get? He should keep going to school until the marginal rate of return on schooling equals the interest rate. After five years of schooling, his earnings are \$ 60,000. The percent change in earnings for another year of school is 6,000/60,000 = 10 % . 4. Briefly explain why wage growth declines throughout a worker’s career. As age increases, the marginal return to investment falls. As the marginal return to investment falls, workers invest less. Wage growth depends on the growth in human capital, so less investment over time translates into slower wage growth over time. 5. Name the two effects of a change in an input price on the demands of a firm, and briefly explain each effect. Substitution effect: as the price of one input falls, the firm substitutes toward using more of that good and less of all substitutes. Scale effect: as the price of one input falls, the marginal cost of production falls, so firms increase their output. In order to increase their output, they use more of all inputs.

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Econ. 421 Final, page 2 of 7 6. Who benefits or loses from a low elasticity of demand for labor, and under what circumstances? Workers benefit from a low elasticity of demand for labor when they ask for above - market wages. Or: workers benefit from a low elasticity of demand for labor when labor is taxed. Or: firms benefit from a low elasticity of demand for labor when labor is subsidiezed. 7. Suppose that we observe a drop in the compensating wage differential paid to people working in a dangerous job. There are two alternative explanations of this phenomenon. The first is that engineering advances might have made it cheaper for firms to provide workplace safety.
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