Labor Economics 3rd Edition George Borjas - Solutions

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A country is debating whether to fund a national database of job openings and give a unemployed workers free access to it. What effect would this plan have on th l?ng-run unemployment rate? What effect would this plan have on the average dura~ tlOn of unemployment? Why?b. A country is debating
Consider an economy with three types of jobs. The table below shows the jobs, the frequency with wruch vacancies open up on a yearly basis, and the income associated with each job. Searcrung for a job costs $C per year and generates at most one job offer.There is a 20 percent chance of not
Consider an economy with 250,000 adults, of wruch 40,000 are retired senior citizens, 20,000 are college students, 120,000 are employed, 8,000 are looking for work, and 62,000 stay at home. What is the labor force participation rate? What is the unemployment rate?
Suppose a country has 100 million inhabitants. The population can be divided into the employed, the unemployed, and the persons who are out of the labor force (OLF). In any given year, the transition probabilities among the various categories are given by:
It is well known that more educated workers are less likely to be unemployed and have shorter unemployment spells than less educated workers. Which theory(ies), the job search model, the sectoral shifts hypothesis, or the efficiency wage model, can best explain this empirical relation?
Suppose the government proposes to increase the level ofUI benefits for unemployed workers. A particular industry is now paying efficiency wages to its workers in order to discourage them from srurking. What is the effect of the proposed legislation on the wage and on the unemployment rate for
Compare two unemployed workers; the first is 25 years old and the second is 55 years old. Both workers have similar skills and face the same wage offer distribution. Suppose that both workers also incur similar search costs. Which worker will have a higher asking wage? Why? Can search theory
a. How does the exclusion of nonworking welfare recipients affect the calculation of the unemployment rate? Use the 2002 Us. Statistical Abstract to estimate what the 2000 unemployment rate would have been if welfare recipients had been included in the calculation.b. How does the exclusion of
Suppose the marginal revenue from search is MR = 50 - 1.5w where w is the wage offer at hand. The marginal cost of search is MC= 5 +wa. Why is the marginal revenue from search a negative function of the wage offer at hand?h. Can you give an economic interpretation of the intercept in the marginal
Consider Table 599 of the 2002 Us. StatisticalAhstract.a. How many workers aged 20 or older were unemployed in the United States during 200 I? How many of these workers were unemployed less than 5 weeks, 5 to 14 weeks, 15 to 26 weeks, and 27 or more weeks?h. Assume that the average spell of
Suppose there are 25,000 unemployed persons in the economy. You are given the following data about the length of unemployment spells:
Discuss some of the factors that may be responsible for the higher unemployment rates observed in many European countries.
Why is the Phillips curve vertical in the long run?
Why do efficiency wages generate involuntary unemployment? What factors prevent the market from clearing in efficiency wage models?
Why do implicit contracts generate unemployment?
What is the sectoral shifts hypothesis?
What is the intertemporal substitution hypothesis? Does this argument provide a con- vincing account of the cyclical trend in the unemployment rate?
Discuss the impact of the UI system on a job seeker's search behavior. Discuss the impact of the UI system on the firm's layoff behavior.
Should a job seeker pursue a nonsequential or a sequential search strategy? Derive a job-seeker's asking wage. Discuss why the asking wage makes a worker indifferent between searching and not searching.
Discuss how it is simultaneously possible for "most" unemployment to be due to short spells and for "most" unemployment to be accounted for by persons in very long spells.
Derive the steady-state rate of unemployment. Show how it depends on the transition probabilities between employment and unemployment.
What are the differences between frictional and structural unemployment? Should we be equally concerned with all types of unemployment? Do the same policies help alle- viate both frictional and structural unemployment?
Discuss some of the hasic patterns of unemployment in the United States since 1960.
Describe the free-riding problem in a profit-sharing compensation scheme. How might the workers of a firm "solve" the free-riding problem?
Why .would a firm ever choose to offer profit sharing to its employees instead of paymg pIece rates?
Suppose a worker cares only about her wage (a "good") and how much effort she exerts on the job (a "bad"). Graph some indifference curves over these !vio commodities for the worker.
Why are some firms more likely to pay their factory workers according to a time rate, but more likely to pay their salespeople at a piece rate?
Consider three firms identical in all aspects (including the probability with which they discover a shirker), except that monitoring costs vary across the firms. Monitoring workers is very expensive at firm A, less expensive at firm B, and c?eapest atf~ C.If all three firms pay efficiency wages to
Consider three firms identical in all aspects except their monitoring efficiency, which cannot be changed. Even though the cost of monitoring is the same across the three firms shirkers at firm A are identified almost for certain; shirkers at firm B have a slightly greater chance of not being found
Suppose a firm's technology requires it to hire 100 workers regardless ofthe w~ge level.The firm, however, has found that worker productivity is greatly affected by Its wage.The historical relationship be!vieen the wage level and the firm's output is given by:'vVhat wage rate should a
All workers start working for a particular firm when they are 20 years old. The value of each worker's marginal product is $18 per hour. In order to prevent shirking on the job, a delayed-compensation scheme is imposed. In particular, the wage level at every level of seniority is determined by:Wage
A firm hires!vio workers to assemble bicycles. The firm values each assembly at $12.Charlie's marginal cost of allocating effort to the production process is ivlC = 4iV, where N is the number of bicycles assembled per hour. Donna's marginal cost is lvlC = 6N.a. If the firm pays piece rates, what
Taxicab companies in the United States typically own a large number of cabs and licenses; taxicab drivers then pay a daily fee to the owner to lease a cab for the day. In return, the drivers keep their fares (so that, in essence, they receive a 100 percent commission on their sales). Why did this
Suppose there are 100 workers in an economy with two firms. All workers are worth $35 per hour to firm A but differ in their productivity at firm B. Worker 1 has a value of marginal product of $1 per hour at firm B; worker 2 has a value of $2 per hour at firm B, and so on. Firm A pays its workers a
What is the bonding critique of efficiency wage models?
What factors create the link between wages and productivity that is at the heart of eff'-clency wage models?
Describe how the firm sets.an efficiency wage above the competitive level. Why are there no .market forces forcmg the profit-maximizing firm to reduce the wage to the competltlve level?
Why IS there mandatory retirement in many countries?
Discuss how upward-sloping age-earnings profiles can elicit more effort from workers.
Why is the principal-agent problem relevant to understanding how CEOs sho Id b compensated?
Discuss some of the problems encountered when firms allocate sizable rewards to the WInner of the tournament.
If piece rates elicit more effort from workers, why do firms not use this method of com4.pensatIOn more often?Show h~,": a large prize spread in a tournament elicits a higher level of work effort from the participants.
Discuss how work~rs who differ in their innate abilities sort themselves across piecerate and hme-rate Jobs. Also describe how the two compensation systems elicit different levels of effort from the workers.
What factors determine whether a firm offers a piece-rate or a time-rate compensation system?
Consider Table 618 in the 2002 US. Statistical A bstract.a. Calculate the union wage effect. Calculate the union effect on total benefits. Calculate the union effect on total compensation.b. Note that for most groups of workers, retirement and savings increase total compensation by about 60 to 80
Consider Table 628 of the 2002 Us. Statistical Abstract.a. How many workers were covered by a union contract in 1983? What percent of the workforce was unionized?b. How many workers were covered by a union contract in 200 I ? What percent of the workforce was unionized?c. Decompose the changes from
Suppose the economy consists of a union and a nonunion sector. The labor demand curve in each sector is given by L = 1,000,000 - 20w. The total (economywide) supply of labor is 1,000,000, and it does not depend on the wage. All workers are equally skilled and equally suited for work in either
Suppose the value of the marginal product of labor in the steel industry is Vlv[P £ =100,000 - E dollars per year, where E is the number of steel workers. The competitive wage for the workers with the skills needed in steel production is $30,000 a year, but the industry is unionized so that steel
a. Would you expect unions to be more willing to call a strike during good economic times or bad economics times? Explain.b. Does Table 627 of the 2002 Us. Statistical Abstract provide evidence to support your answer in part (a)? What is the single overriding pattern in this table?
Suppose the union.'s resistance curve is summarized by the following data. The union's initial wage demand IS $ 1 0 per hour. If a strike occurs, the wage demands change as follows:length of Strike Consider the following ch.anges to t~e union resistance curve and state whether the proposed ch~ge
Consider a firm that faces a constant per unit price of $1,200 for its output. The firm hire~ workers: E. ~om a union at a daily wage of w, to produce output, q. where the production functIOn IS:q = 2 Etl2 The margina~ product of labor implied by this production function is l1E1I2. There are 225
A bank has $5 million in capital that it can invest at a 5 percent annual interest rate. A group of 50 workers comes to the bank wishing to borrow the $5 million. Each worker in the group has an outside job available to him or her paying $50,000 per year. If the group. of workers borr?ws the $5
Suppose the union cares only about the wage and not about the level of employment.Derive the contract curve and discuss the implications of this contract curve.
Using the model of monopoly unionism, present examples of economic or political activities that the union can pursue to manipulate the firm's elasticity onabor demand.Relate your examples to Marshall's rules of derived demand.
Suppose the union in problem 1 has a different utility function. In particular, its utility function is given by:U= (w - w*) X E where w* is the competitive wage. The marginal utility of a wage increase is still E. but the marginal utility of employment is now w - w*. Suppose the competitive wage
Suppose the firm's labor demand curve is given by:w = 20 - 0.01 E where w is the hourly wage and E is the level of employment. Suppose also that the union's utility function is given by:U=wxE It is easy to show that the marginal utility of the wage for the union is E and the marginal utility of
What is conventional arbitration? What is final-offer arbitration? How do the union and firm take into account the arbitrator's behavior when deciding which wage offers to put on the table?
What is the exit-voice hypothesis? What is the implication of this hypothesis for the observed productivity of workers in unionized firms?
What are threat and spillover effects? How do they bias our estimates of the union wage effect?
Define the union wage gain and the union wage gap. Why should we care about the magnitude of the union wage gain? Why should we care about the magnitude of the union wage gap? Under what conditions will the union wage gap provide a reasonable estimate of the union wage gain?
Describe how employers "choose" the optimal length of a strike in a model where there is asymmetric information.
What is the Hicks paradox?
Discuss the difference between efficient contracts and strongly efficient contracts.
Discuss how both unions and firms can be better off if they move off the demand curve.Derive the contract curve.
Describe how we calculate the percentage decline in national income resulting from the misallocation of labor in a model of monopoly unionism. What is the dollar value of this allocative inefficiency if unions and firms reach efficient contracts and the contract curve is vertical?
Describe the wage-employment outcome in a model of monopoly unionism. Explain why (and in what sense) this wage-employment outcome is inefficient.
What does it mean to say that a union has a utility function? How exactly is this utility function derived from the preferences of the workers?
Suppose policymakers feel not enough women are attending college, so they take actions that reduce the cost of college for women to $10,000. Which women will now attend college? What is the expected pass rate of women who take the test? I. What factors account for the decline in private-sector
Suppose 100 men and 100 women graduate from high school. After high school, each can work in a low-skill job and earn $200,000 over his or her lifetime, or each can pay$50,000 and go to college. College graduates are given a test. If someone passes the test, he or she is hired for a high-skill job
Consider a town where 10 percent of the population is black (and the remainder is white). Because blacks are more likely to work the night shifts, 20 percent of all cars driven in that town at night are driven by blacks. One out of every 20 people driving at night is drunk, regardless of race.
After controlling for age and education, it is found that the average woman earns$0.80 for every $1 earned by the average man. After controlling for occupation to control for compensating differentials (i.e., maybe men accept riskier or more stressful jobs than women, and therefore are paid more),
Repeat each of the three comparisons in problem 8, except now condition on education level. In other words, calculate the wage ratios separately for all workers who have not graduated high school, have only a high school degree, have a bachelor's degree, or have a master's degree. Do the wage
Consider Table 211 of the 2002 Us. StatisticalAbstract.a. How much does the average female worker earn for everyone dollar earned by the average male worker?b. How much does the average black worker earn for every one dollar earned by the average white worker?c. How much does the average Hispanic
Suppose that an additional year of schooling raised wages by 7 percent in 1970, regardless of the worker's race or ethnicity. Suppose also that the wage differential between the average white and the average Hispanic was 36 percent. Finally, assume education is the only factor that affects
Suppose a restaurant hires only women to wait on tables and only men to cook the food and clean the dishes. Is this behavior most likely to indicate employer, employee, customer, or statistical discrimination?
Suppose the firm's production function is given by q = lOVE" + Eb where E and E are the number of whites and blacks employed by the firm, respectively. It ~an be ~hown that the marginal product of labor is then Suppose the market wage for black workers is $10, the market wage for white workers is
Suppose years of schooling, s, is the only variable that affects earnmgs. The equatIOns for the weekly salaries of male and female workers are gIVen by:Win = 500 + 100s wf= 300 + 75s On average, men have 14 years of schooling and women have 12 years of schooling.a. What is the male-female wage
In 1960, the proportion of blacks in southern states was ?igher than the proportlon of blacks in northern states. The black-white wage ratIO m southern st~tes was also much lower than in northern states. Does the difference in the black-white wage ratIO across regions indicate that southern
Suppose black and white workers are complements in the sense that the margmal prod-. uet of whites increases when more blacks are hired. Suppose als.o t~at .wh~te workers do not like working alongside black workers. Does employee dlscnmmatlOn lead .to complete segregation? Does it create a wage
Suppose black and white workers are not perfect substitutes in pr?ducti?n. The ~rm wants to produce 100 units of output. Show that employers who dlscnmmate agamst blacks earn lower profits. Does your conclusion depend on whether the marketdetermined black wage is lower than the white wage? .
Discuss why a sizable part of the female-male wage differential might be attributable to "supply-side" factors, such as a woman's decision to work and acquire human capital.
Discuss the factors that might explain why the black-white wage ratio rose significantly in the past few decades.
Derive the Oaxaca measure of discrimination. Does this statistic truly measure the impact of discrimination on the relative wage of the affected groups?
What is statistical discrimination? Why do employers use group membership as an indi- cator of a worker's productivity? What is the impact of statistical discrimination on the wage of the affected workers? Must statistical discrimination reduce the average wage of blacks or women?
Discuss the implications of customer discrimination for the employment decisions of firms and for the black-white wage differential.
Derive the implications of employee discrimination for the employment decisions of firms and for the black-white wage differential.
Can employer discrimination against blacks lead to a situation in which the equilibrium black wage exceeds the equilibrium white wage?
Discuss the implications of employer discrimination for the employment decisions of the firm, for the profitability of the firm, and for the black-white wage ratio in the labor market,
What is the discrimination coefficient?
Under the recently enacted 200 I tax legislation in the United States, all income tax filers can now deduct from their total income half of their expenses incurred when moving more than 50 miles to accept a new job. Prior to the change, only tax filers who itemized their deductions were allowed to
Phil has two periods of work remaining prior to retirement. He is currently employed in a firm that pays him the value of his marginal product, $50,000 per period. There are many other firms that Phil could potentially work for. There is a 50 percent chance of Phil's being a good match for any
A country has two regions, the North and the South, which are identical in all respects except the hourly wage and the number of workers. The demand for labor in each regIOn IS:
The labo~ demand curve for low-skill workers in the United States is W = 24 - O.IE where ~ .IS the number of workers (in millions) and W is the hourly wage. There are l2~ mllhon domestIc ~.S. low-skill workers who supply labor inelastically. If the Umted States opened Its borders to immigration, 20
In the absence of any legal barriers on immigration from Neolandia to the United State.s, the e~onomic conditions in the two countries generate an immigrant flow tha~ IS negatlvel.y selected. In response, the United States enacts an immigration pol;cy t~at rest:lct~ entry to Neolandians who are in
The immigration surplus, though seemingly small in the United States redistributes wealth from workers to firms. Present a back-of-the-envelope calc~lation of the losse~ accrumg to n~tJve workers and of the gains accruing to firms. Do these calculatIOns he.lp .expl~m why s0n:-e segments of society
Suppose the United States enacts legislation granting all workers, including newly arrived immigrants, a minimum income floor of y dollars.Q. Generalize the Roy model to show how this type of welfare program influences incentives to migrate to the United States. Ignore any issues regarding how the
Suppose a worker's skill is captured by his efficiency units oflabor. The distribution of efficiency units in the population is such that worker 1 has one efficiency unit, worker 2 has two efficiency units, and so on. There are 100 workers in the population. In deciding whether to migrate to the
Mickey and Minnie live in Orlando. In Orlando, Mickey's net present value oflifetime earnings is $125,000, and Minnie's net present value is $500,000. The cost of moving to Atlanta is $25,000 per person. In Atlanta, Mickey's net present value of lifetime earnings would be$155,000, and Minnie's net
Nick and Jane are married. They currently reside in Minnesota. Nick's present value of lifetime earnings in his current employment is $300,000, and Jane's present value is$200,000. They are contemplating moving to Texas, where each of them would earn a lifetime income of $260,000. The couple's cost
Suppose a worker with an annual discount rate of 10 percent currently resides in Pennsylvania and is deciding whether to remain there or to move to Illinois. There are three work periods left in the life cycle. If the worker remains in Pennsylvania, he will earn$20,000 per year in each of the three

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Labor Economics 3rd Edition George Borjas - Solutions

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