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Unformatted text preview: Labor Economics 01:220:302 Sec.01 Instructor: Carl Shu‐Ming Lin Name: Final Spring 2011 May 6, 2011 Q1. 1. With the assumptions made in our model, OSHA standards that decrease risk levels in the workplace should establish the allowable risk levels A) to ensure the highest degree of health and safety protection for all workers. B) so that they will not result in higher costs/lower profits for employers. C) by focusing on jobs currently paying the largest compensating wage differentials. D) by weighing the costs of safety programs against the value workers or other beneficiaries attached to the benefits of reduced risk. 2. If workers on the third shift make $1 per hour more than workers on the first shift, then A) working during the day is worth less than $1 per hour to all workers. B) working during the day is worth exactly $1 per hour to all first shift workers. C) working during the day is worth more than $1 per hour to all third shift workers. D) working during the day is worth at least $1 per hour to all first shift workers. 3. A firm offers the optimal mix of wages and benefits. It is paying $5 an hour in wages and $3 in benefits. The minimum wage is then increased from $5.15 to $7 an hour. Assume all workers have the same utility curves (and have the usual shape). If the firm continues to spend $8 an hour on workers, then A) workers will be better off. B) workers will be as well off as before. C) workers will be worse off. D) it is impossible to determine if workers are better or worse off without knowing if benefits are a normal or inferior good. 4. Fewer women leaving the labor market to raise children has given women the incentive to acquire ________ on‐the‐job training early in their careers, yielding age‐earnings profiles which are ________ than they were about twenty years ago. A) more; steeper B) more; flatter C) less; steeper D) less; flatter 5. In the signaling model, assume high school graduates are paid a stream of income whose present value is $200,000. College graduates are paid a stream of income whose present value is 1 X. College education costs higher‐productivity workers $50,000 and lower‐productivity workers $150,000. What value of X will cause higher‐productivity workers to go to college and lower‐productivity workers to not go to college? A) $225,000 B) $475,000 C) $700,000 D) $275,000 6. Mary can take a class that costs $10,000. The class teaches her a skill that will only be useful during the second year after training. What must the minimum pay for the skill in the second year for Mary to take the class? She could alternatively invest the $10,000 and earn an annual rate of return of 20%. A) $4,000 B) $4,400 C) $14,000 D) $14,400 7. The earnings of immigrants, when compared to those of similar native workers, A) start out above those of the native workers, but increase more slowly. B) start out above those of the native workers, and increase more rapidly. C) start out below those of the native workers, and increase more slowly. D) start out below those of the native workers, but increase more rapidly. 8. If skilled and unskilled labor are gross complements, then an increase in immigration and a corresponding decrease in wages paid to unskilled laborers will cause A) an increase in the employment of skilled labor. B) a decrease in the employment of skilled labor. C) no change in the employment of skilled labor. D) a decrease in the employment of unskilled labor. 9. Allowing more immigration of unskilled workers will lower the real wages of skilled workers if: A) unskilled workers are substitutes for skilled workers and the substitution effect dominates the scale effect. B) unskilled workers are complements to skilled workers. C) both A and B. D) neither A nor B. 10. Occupational discrimination A) occurs when secretaries are paid less than truck drivers. B) is when the distribution of jobs within one group is different from the distribution of jobs within another group. C) is keeping one group in lower‐paying jobs although their potential productivity is equal to that 2 of those who have access to higher‐paying jobs. D) is the desire of those in one group to work in different jobs than those in another group. Q2. 20pts 1. There are one hundred supervising jobs and one hundred male supervisors in a competitive job market. In addition, each supervisor supervises one line worker. There are one hundred line jobs and one hundred line workers. The supervisor of job one dislikes supervising female line workers by $1 a week. The supervisor of job two dislikes female line workers by $2 a week, and so forth, such that the supervisor of job hundred dislikes supervising female line workers by $100 a week. There are 60 female and 40 male line workers. Supervisors of male line workers are paid $400 a week and male line workers are paid $200 a week. Which of the following is NOT true in the short‐run equilibrium? A) The female line worker working for the supervisor in job 60 will get paid $140 a week. B) The female line worker working for the supervisor in job 20 will get paid $140 a week. C) The employer of the supervisor in job 80 must paid the supervisor $460. D) The employers of male line workers could increase profits by hiring females instead. 2. A study finds that handsome people make more than ugly people in occupations where workers interact with customers. This supports which of these models of discrimination? A) employer discrimination B) customer discrimination C) employee discrimination D) statistical discrimination 3. Empirical studies have concluded that unionization ________ productivity and ________ profit rates. A) has no consistent effect on; has no consistent effect on B) has no consistent effect on; reduces C) reduces; has no consistent effect on D) reduces; reduces 4. Unions tend to A) increase wages for white‐collar and blue‐collar members by roughly the same amount relative to non‐union workers. B) increase relative wages more for blue‐collar workers. C) increase relative wages more for white‐collar workers. D) encourage high levels of education and training for their members. 3 5. Unions usually have which of the following effects: A) increase the profits of the firms unionized by motivating workers to work harder. B) increase the growth rate of employment in unionized firms as more workers are attracted to unionized jobs. C) increase the fraction of total compensation paid in the form of employee benefits. D) decrease the total compensation of unionized workers. 6. A union raises the wage of firm X from $10 to $15 an hour. In which of these cases is there a direct reduction in the social welfare? A) Worker A retains their job at company X, such that company X's profits associated with worker A go down $5 an hour. B) Worker B, working for firm Y gets a lower wage due to the spill‐over effect. C) Worker C, who is getting $7 an hour working for firm Z would have otherwise have gotten a job with firm X at a wage of $8. D) Worker D, who is working for firm M, gets a higher wage due to the threat effect. 7. The stock of unemployed workers at any given time consists mostly of A) people who have short spells of unemployment. B) people who have long spells of unemployment. C) people who have been laid off from one employer and become employed by another. D) people who have searched for jobs, but who have become discouraged. 8. Wait unemployment is a form of ________ unemployment. A) structural B) frictional C) cyclical D) structural and cyclical 9. Suppose that no one enters or leaves the labor force and that the fraction of the unemployed getting a job (in a given period) is 0.10 and the fraction of the employment becoming unemployed is 0.02. What is the approximate unemployment rate when the flows into and out of unemployed are in balance? A) 9% B) 10% C) 17% D) 22% 10. If workers for a firm have mainly general human capital, then when the demand for its output falls, the firm will mainly: A) lower wages. B) cut back on employment. C) cut work hours of all workers. D) increase its specific investment in workers as the 4 opportunity cost of training is low. Q3. The demand for labor in a domestic industry is D 36 2W , where W the wage rate and D the number (in thousands) of employees whom the firms would be interested in hiring at particular wage rates. S domestic 9 W where S domestic =the number (in thousands) of native workers who are interested in working in the industry at particular wages. Stotal 10 2W , where Stotal is the total number (including immigrants) of workers who are interested in working in the industry at particular wages. a. Graph the following curves for this labor market: demand for labor, domestic supply, supply of immigrant workers, and total supply of workers. b. What is the equilibrium wage rate before immigration? How many workers would be hired? c. What is the equilibrium wage rate after immigration? How many workers would be hired? How many domestic workers would be hired? How many immigrant workers would be hired? Q4. There are two sectors of the construction industry that currently pay their employees the market‐clearing wage. The demand for labor in each sector is MRPL 12 L, where L= the number (in thousands) of workers. The supply of labor in each sector is L W 2, where W=wage rate (dollars per hour). A union organizes in one of the sectors, and it restricts supply to that sector by insisting that only those in the union are hired by firms in that sector (and it is difficult to get into the union). When the employees in this sector unionize, the supply of labor in that sector changes to L W 4. a. What is the wage rate in both sectors before unionization? How many employees will be hired in each sector? b. What is the wage rate in the unionized sector? How many employees will be hired in the unionized sector? c. If the unemployed workers in the newly unionized sector spill over into the nonunion sector, what will be the wage rate in the nonunion sector? How many employees will be hired in that sector? d. What is the union relative wage advantage? What is the true absolute effect? 5 Q5. A. The Great Depression of 1930s To understanding the Great Depression, the best way is to look at its evolution by phases 1. Booming Strong Economy in 1920s 2. Beginning Shocks, 1928‐1929 3. Aggravating Shocks, 1930‐1933 4. Rock Bottom and Recovery, 1933‐1936 5. The 1937‐1938 Recession 6. The Recovery, 1939‐1941 We know there were bank panics during 1930‐1933 which aggravated the economic recession into a depression. The first bank panic, from October 1930 to January 1931, when there was a rise in the amount of deposits at failed banks. Because there was no deposit insurance at the time, when a bank failed, depositors would receive only partial repayment of their deposits. Therefore, when banks were failing during a bank panic, depositors knew that they would be likely to suffer substantial losses on deposits and thus the expected return on deposits would be negative. The theory of asset demand predicts that with the onset of the first bank crisis, depositors would shift their holdings from checkable deposits to currency by withdrawing currency from their bank accounts. Also, our earlier analysis of the banking management 6 suggests that the resulting surge in deposit outflows would cause the banks to protect themselves by substantially increasing their excess reserves. a. According to the fact described above, use what you have learned (money supply model and the money multiplier) to analyze why the money supply fell by 25% during the bank panics 1930‐1933. b. The monetary base increased by 20% during the contraction of 1929‐1933, but the money supply fell by 25%. Explain why this occurred. How can the money supply fall when the base increases? c. Make your comments on each of the four Fed’s monetary policies right before and during the Great Depression. (i.e., Do you agree or disagree with the Fed’s actions? Why or why not?) 1. In 1928, the Fed raised the discount rate from 3 ½ to 5%. 2. In July 1929, the Fed raised the discount rate again from 5 to 6%. 3. In August 1931, Federal Open Market Committee voted 11 to 1 against $300 million open market purchase of bonds. 4. In 1937, the Fed doubled the required reserve ratio. d. Here are some basic numbers of the Great Depression. Real GDP falls 39%. Real Consumption falls 29%. Prices (GDP deflator) falls 23%. Unemployment Jumps: 3.2% in 1929, 25% in 1933, 17% in 1939. Now, use an AD‐AS model to show these results. e. The Industrial Policy during the Great Depression raised the nominal wages (in particular the minimum wage) for workers. Hence, it helped people to have more income. Do you agree or disagree with this policy? Please explain and use a simple labor market model to support your answer. f. 7 Federal Deficit as Percentage of GDP
10 8 6 4 Percent 2 0 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939
-2 -4 -6 -8 -10 Actual GDP Full Employment GDP (1) What does this graph tell you about the fiscal policy during the Great Depression? (2) Do you agree with this fiscal policy? Explain. (3) If you were the policymaker in the Federal Government during the Great Depression, what would you do? (Here you need to show a graph) B. OSHA program Suppose now the government discovers that her job is highly hazardous and OSHA forced the risk level down to R ' , 8 a. Suppose the actual risk of injury is R2 , a work who is receiving wage W1 then what is the point that he thinks he is? What is the point that he actually is? b. If the risk of injury is forced down to R ' , will he be better off, explain? c. Briefly discuss the meaning of the shaded area. C. Wage Discrimination Suppose a discriminatory employer faced with a market wage rate of W f for women and minorities will hire N 0 . Profit maximizing employers will hire N1 . a.
e. What is the area of the revenue of the discriminatory firm? What is the area of the cost of the discriminatory firm? What is the area of the revenue of the nondiscriminatory firm? What is the area of the cost of the nondiscriminatory firm? Explain: which type of firm has the room to implement this discrimination hiring policy. d. Union Suppose the monopoly‐union solution is point b, 9 a. Suppose that rather than locating at point b, the parties negotiated a contract that called for them to locate at point d, briefly discuss what happens to the welfare of both employer and employee. b. Suppose that rather than negotiating a contract to wind up at b, the parties agreed to a contract that called for them to locate at point e, briefly discuss what happens to the welfare of both employer and employee. c. Indicate where is the set of the “contracts”. d. Where is the “efficient contracts”? e. The union prefers which point? the employer prefers which point? f. Is the monopoly‐union solution efficient? Explain. 10 ...
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