ProblemSet5 - Economics 3203 Fall 2010 Problem Set # 5:...

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Economics 3203 – Fall 2010 Problem Set # 5: Labor Supply (cont.) Does not need to be turned in – use as preparation for Midterm 1. A worker has a wage of $9 per hour and chooses to work for 40 hours per week. She pays $4 per hour for child care. Suppose she could instead choose to be in a public “workfare” program in which she would spend 40 hours per week in a publicly-provided job and would be provided with free child care. Instead of receiving a wage, she would receive a monthly living stipend (payment). a. From a policy maker’s perspective, what is the largest monthly payment we could choose such that we do not induce the worker to quit her current job? (Assume 4 weeks in a month) b. Suppose the program’s monthly payment is even higher than the level you just calculated, but you observe that the worker still does not switch to the workfare program. Can you think of any reasons this might happen? 2. The U.S. government passed a law in 1942 that prohibited garment makers from employing
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