Econ 481 Spring 2017 Problem Set 2: Labor Supply Please show your work, writing key equations in letters before solving them. Please clearly label axes, slopes, and kink points on all graphs. 1. (All numbers in thousands) In December 2016, the civilian non-institutional population was 254,742. The number of employed workers was 152,111. The number of unemployed workers was 7,529. The number not in the labor force is 95,102. a. What was the labor force participation rate? b. What was the employment rate? c. What was the unemployment rate? d. Why might the unemployment rate might underestimate the severity of an economic downturn? 2. Josephine earns $20 per hour. She faces a uniform 15 percent tax rate on all earned income and pays $8 per hour in child-care expenses for each hour that she works. She receives $80 in child support payments (her only non-labor income) each week. There are 168 hours in the week. a. What is Josephineâs gross hourly wage? b. What is Josephineâs net-of-tax wage? c. What is Josephineâs take home hourly pay? d. Graph Josephineâs weekly budget line, labeling axes, intercepts and slopes. e. Now suppose that Josephine is offered an overtime wage of $30 per hour for every hour that she works above 40 hours per week (all other parameters stay the same). Show how this changes the budget constraint. 3. Consider an individual with the following utility function: U(C,L) = C1/2L1/2, where C is quantity of consumption and L is hours of leisure in a week. Total time available to allocate between leisure and consumption is 112 hours per week. The individual has non-labor income of $200 per week and an hourly wage of $10. a. What is the marginal rate of substitution of leisure for consumption? b. Write down the equation for this individualâs budget constraint. Graph it. c. Solve for this individualâs optimal level of consumption, leisure, and hours of work d. What is her reservation wage? 4. Letâs compare the incentives generated by two different types of public programs. The Aid to Families with Dependent Children (AFDC – welfare before reform) provides an income subsidy, G, at 0 hours of work, that is taxed away at a rate t when an individual chooses to work. The Earned Income Tax Credit (EITC), on the other hand, consists of a subsidy (at rate s) for individuals working low hours, up to a max credit (C) at a certain level of income, and then is phased out (at a rate t) above a certain income cutoff. a. Draw what an AFDC budget constraint looks like, including a standard budget constraint for comparison. Why does the AFDC discourage work? (Explain, using the concept of income and substitution effects in your answer) b. Draw what an EITC budget constraint looks like, including a standard budget constraint for comparison. How does the EITC solve the work disincentive problem created by the AFDC? (Again, refer to income and substitution effects in your answer) c. The effects of the EITC on labor supply are not positive for all individuals. On a graph, illustrate a case in which the EITC reduces the number of hours worked by an individual. Explain using income and substitution effects. 5. Suppose you want to estimate the following labor supply equation: Annual Work Hours = ? + ?*(Average Hourly Wage) + ? You gather data on US workers aged 22 to 55 from the Current Population Survey. You define the Average Hourly Wage as self-reported total annual labor income divided by self-reported total annual work hours. a. Describe in words how to interpret the coefficient ? (ignore any concerns about causality for now) b. Give two separate reasons why you might be concerned that ? is not a good estimate of the causal effect of a change in the hourly wage a worker faces on the number of hours that they work
Our Service Charter
-
Excellent Quality / 100% Plagiarism-Free
We employ a number of measures to ensure top quality essays. The papers go through a system of quality control prior to delivery. We run plagiarism checks on each paper to ensure that they will be 100% plagiarism-free. So, only clean copies hit customers’ emails. We also never resell the papers completed by our writers. So, once it is checked using a plagiarism checker, the paper will be unique. Speaking of the academic writing standards, we will stick to the assignment brief given by the customer and assign the perfect writer. By saying “the perfect writer” we mean the one having an academic degree in the customer’s study field and positive feedback from other customers. -
Free Revisions
We keep the quality bar of all papers high. But in case you need some extra brilliance to the paper, here’s what to do. First of all, you can choose a top writer. It means that we will assign an expert with a degree in your subject. And secondly, you can rely on our editing services. Our editors will revise your papers, checking whether or not they comply with high standards of academic writing. In addition, editing entails adjusting content if it’s off the topic, adding more sources, refining the language style, and making sure the referencing style is followed. -
Confidentiality / 100% No Disclosure
We make sure that clients’ personal data remains confidential and is not exploited for any purposes beyond those related to our services. We only ask you to provide us with the information that is required to produce the paper according to your writing needs. Please note that the payment info is protected as well. Feel free to refer to the support team for more information about our payment methods. The fact that you used our service is kept secret due to the advanced security standards. So, you can be sure that no one will find out that you got a paper from our writing service. -
Money Back Guarantee
If the writer doesn’t address all the questions on your assignment brief or the delivered paper appears to be off the topic, you can ask for a refund. Or, if it is applicable, you can opt in for free revision within 14-30 days, depending on your paper’s length. The revision or refund request should be sent within 14 days after delivery. The customer gets 100% money-back in case they haven't downloaded the paper. All approved refunds will be returned to the customer’s credit card or Bonus Balance in a form of store credit. Take a note that we will send an extra compensation if the customers goes with a store credit. -
24/7 Customer Support
We have a support team working 24/7 ready to give your issue concerning the order their immediate attention. If you have any questions about the ordering process, communication with the writer, payment options, feel free to join live chat. Be sure to get a fast response. They can also give you the exact price quote, taking into account the timing, desired academic level of the paper, and the number of pages.