Reference no: EM133199388

Assignment:

1. Jobs are either noisy or serenely quiet. Quiet jobs pay $10 per hour. Most workers don't like the noise, so they won't work on noisy jobs for $10 per hour. In particular, for the five workers in this labor market, Anna requires $17 per hour, Bart $14 per hour, Carmen $10 per hour, Davin $15 per hour, and Ellen $11 per hour to work on a noisy job.

It's costly for most firms to reduce noise on a job. For the five firms in this labor market, Al's Auto Body won't pay a wage more than $20 per hour on a noisy job; Bonnie's Bikini Boutique, $10 per hour; Carl's Custom Cabinets, $12 per hour; Debbie's Digital Demos, $14 per hour; and Elton's Entertainment, $16 per hour.

Each worker works on only one job, and each firm employs only one worker.

(a) Lightly sketch each worker's reservation wage in the graph.

(b) If the wage on the noisy job is $13 per hour, who wants to work on a noisy job? What is the quantity supplied of labor to noisy jobs if wn = 13? Carefully sketch the supply of labor to noisy jobs.

(c) Lightly sketch each firm's reservation wage in the graph.

(d) If the wage on the noisy job is $13 per hour, which firms offer noisy jobs? What is the quantity demanded of labor on noisy jobs if wn = 13? Carefully sketch the demand for labor on noisy jobs.

(e) What is the equilibrium wage for noisy work? How many people work on noisy jobs in the equilibrium?

(f) Noise is implicitly traded in this labor market. If government regulations require all jobs to be quiet, who suffers?

2. Julio will live and work forever, he borrows and lends at a 4 percent annual interest rate, and he has no out-of-pocket expense of attending school. The table below lists Julio's weekly wage for each completed grade of school.

(a) For each grade, use the conventional method to compute Julio's marginal rate of return to schooling Δw/w.

(b) Julio's marginal rate of return to schooling falls to 2 percent at grade ______.

(c) To maximize wealth, Julio quits school after completing which grade?

(d) If Julio chooses schooling s to maximize his marginal rate of return to schooling, he completes _____________ grades.

(e) Lea and Julio have the same wage-schooling curve, but Lea faces an 8 percent annual interest rate. At what grade does wealth-maximizer Lea finish her education?

3. Donna works on a job that will involve lots of general training over her 40-year career. The figure below illustrates her net-productivity profile vn(x). Four wage profiles, each with the same present value as vn(x), also appear in the figure.

(a) Employment at will governs Donna's job. What does this term mean?

(b) To what does the term "net productivity" refer? Labor's value of marginal product with or without on-the-job training? With or without direct costs and lost productivity associated with training? Or with or without taxes?

(c) Why does Donna's net-productivity profile vn(x) slope up?

(d) Consider a flat wage profile that pays Donna $12 per hour throughout her career. If the interest rate is 0 percent, is this wage profile competitive?

(e) Suppose the employer pays Donna w0(x) = 15 for her whole career. Does Donna or her employer pay for her training, or do they share the costs of and returns to her training with this flat wage profile?

(f) Which (if any) of the four wage profiles in the figure back-load(s) pay?

(g) Which (if any) of the four wage profiles encourage(s) Donna to quit in the 15th year of her career (i.e., at x = 15)?

(h) Which (if any) of the four wage profiles lead(s) Donna's employer to dismiss her in the 15th year of her career (i.e., at x = 15)?

(i) Which wage profile is the competitive-equilibrium wage profile?

4. The figure below displays the relationships between hourly wages w and a skill variable x for blacks and whites. The average values of the skill variable are x = 8 for blacks and x = 12 for whites.

(a) What are the average hourly wages of blacks and whites?

(b) What are the black-white wage ratio and wage gap?

(c) Bernard, who is black, has the skill of the average white worker. What is his hourly wage? How does his wage compare to the wage of the average black worker and the wage of the average white worker?

(d) Woody, who is white, has the skill of the average black worker. What is his hourly wage? How does his wage compare to the average wage of blacks and the average wage of whites?

(e) Standardize the comparison to compute a measure of discrimination (in dollars per hour) for workers with 10 units of skill.