Reference no: EM133203879
Assignment:
Consider a situation in which there are just two countries: an Origin, and a Destination country.
Labor demand in the origin country is given by:
wo= 10-Lo
Labor demand in the destination country is given by:
Wd= 14-Ld.
where Lo and Ld indicate the number of workers in the origin and destination countries, respectively. Initially, there are 6 workers in the origin country and 4 workers in the destination country. Assume that labor supply is perfectly inelastic in both countries (that is, that labor supply can be represented through a vertical line).
a. Consider first the case in which individuals are not able to change their country of residence.
b. Consider next the case in which workers can freely migrate across countries (at no cost). What would be the equilibrium wage in the destination and in the origin countries? How many workers (if any) would migrate from the origin to the destination country?
The government in the destination country is worried about the potentially negative effects of immigration on the labor market. To address this issue, the government is considering the introduction of a "migration permit" that workers from the origin would need to buy in order to enter the destination country.
c. Assume that the only goal of the government is to maximize the money that it obtains from selling "migration permits" to workers in the origin country. The government is deciding between three possible prices for the migration permit: 2$, 4$ or 8$. Which of these prices would you recommend to the government? Why?
d. Assume that the government finally decides to charge a price of 2$. An economist hired by the government claims that, by charging this price, the government will collect enough money to fully compensate workers in the destination country for the impacts of immigration. Is this economist right? Why?
Data Interpretation
Assume you are interested in measuring the impacts of the 1980 arrival of Marielitos on Miami's labor market. To do so, you decide to compare the labor market outcomes of native-born workers in Miami in 1979 to the labor market outcomes of native-born workers in Miami in 1981. Explain possible issues with such research strategy and discuss how you could improve it.