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- 1. Expertsmind.com | Labor Economics Assignments | Economics HelpQuestion 1.Sally recently finished her full-time training and received certification as a nurse’s aid at the endof August. She sent out applications to prospective employers during the last three weeks ofAugust so that she would start work on September 1st. She followed up on her applications bymaking phone calls starting the day after she submitted them. During the month of Septembershe continued to look for employment in the help-wanted ads of local newspapers and jobopenings listed online while she waited for calls for interviews. a) How would the Bureau of Labor Statistics count Sally for the month of July? For the month of August?For the month of September? Explain your answers.Towards the end of September, Sally’s savings dwindled to only afford her $600 per month onconsumption goods. She then decided to put an application in at her local grocery store for acashier position. The grocery store, D-Town, offers her at a wage of $8.00 an hour for 30 hrs aweek (five days of six hour shifts). Even though she gladly accepts the position (that startsOctober 1st), she keeps hoping that someone will hire her as a full-time nurse’s assistant. b) According to Bureau of Labor Statistics definitions, what kind of worker will Sally be for the month of October? (Remember the BLS’s different types of underutilization of the labor force.)As mentioned in class, the labor supply model supposes that workers choose how many hoursthey will work. Every week Sally asks her manager if she can have some additional hours (sheprefers 10 more), but her manager says, “Sorry, but we don’t need you more than 30 hours aweek right now.” Labor Economics Problem Set One Fall 2011 c) Graph Sally’s labor supply decision for the month of October. Assume that she maintains her $600 savings over the month, which (because Sally needs to sleep 8 hours each day) has a total of 496 hours available for working and/or leisure. For the moment, assume that Sally has typical, smooth, convex shaped indifference curves. Be sure to depict her dissatisfaction with her manager’s choice of hours.In the last week of October Sally’s manager asks her to work for 5 additional hours twice a week(for the Halloween-weekend rush), such that on two days she will work a total of 11 hours. Thelabor laws of the state where this D-Town does business say that grocery store workers must bepaid overtime for the hours of labor in excess of eight hours per day even if the worker does notwork more than 40 hours a week. The overtime pay stipulated in the law is “time and a half,” orw(1 + 0.5) per hour. Sally likes the higher pay so much that her optimal amount of hours ofwork—with the overtime pay—turns out to be more than 40 hours per week. d) Assuming the same, typical indifference curves used in the previous question, graph Sally’s labor supply decision for the last week (124 hours) of October. Your graph should include Sally’s preference of 40 hours per week over 30 hours at $8.00 an hour, her indifference curve at 40 hours per week at the overtime wage, and her optimal hours at
- 2. the overtime wage. Also, be sure to include the amount of the overtime wage, her $600 savings adjusted to a weekly amount, the amount of hours for which the overtime wage is paid, and her final consumption level under the ‘30 hrs at $8.00’ and ‘40hrs at overtime’ schedulesSally gets a call from Mount St. Barclays Hospital for an interview November 1st. In the interviewa hospital administrator states that the salary for the position will be determined later, onlyafter all the interviews of the job candidates have been completed. Minutes afterwards duringthe interview they ask Sally if she is willing to work 60 hours a week if the hospital needs her to(which could be a regularity). Given that Sally can only give honest responses to questions, she isperplexed as to how to answer the question, since the range for a nurse’s assistant salary isbetween $24,000/year and $33,000/year. e) Provide a graph that explains why Sally has difficulty in answering the question on a weekly basis (i.e., T = 124). Assume the following (1) there are 48 work weeks per year, (2) that she’ll be paid a salary (not a wage), (3) that the 60 hours they are asking about are mandatory for the job, and (4) that she is comparing these two extreme salaries to each other and being Out-of-the-Labor Market (that is, she is not comparing them to her current situation at D-Town). Assume also that she would maintain $600 savings per month for consumption.The day after the interview at Mount St. Barclays, Sally receives an offer from them: a salary of$30,000 as a nurse’s assistant for five days a week at their outpatient site in the town of Boufou,which is approximately a two hour drive from where she lives. (The mandatory hours are40/week and will not regularly exceed amount.) She tells them that she needs a day to think itover, in which time she determines that the commute each day will total four hrs. Moreover,there is no public transportation Labor Economics Problem Set One Fall 2011
- 3. she can take for the commute, so she will need to buy a car (which she estimates will exhaust allof her $600 set aside for monthly consumption). f) Graph Sally’s offer. Assume T = 496. Be sure to show her effective reservation wage under the combined commute and car purchase required for her to do this job. Draw the graph such that she would readily accept the offer if there was no need for a car and four hr commute per day, but that she will have to reject it as it is.After Sally rejects the offer from Mount St. Barclays, she is called in for an interview at RegisMedical Group, which goes extremely well: by the end of the week she is offered a position witha salary of $30,000/year. The total hours per week requested from her can vary, but she isrequired to supply at least 40 hours a week. (For the following questions, use a weekly amountof hours, T = 124, assuming 48 work weeks in the year. She also maintains her $600/monthsavings for consumption goods.) g) Sally’s utility function over hours of consumption (C) and leisure (L) is U(C, L) = C0.7L0.3. What is her level of utility at 40 hours of labor per week at this salary? h) Even though she is required to work 40 hours per week, what are her optimal amount of hours at Regis Medical Group? (Note, you will need to figure out the implicit wage of this salary position.) i) What is the amount of the change in Sally’s utility when she goes from D-Town to Regis Medical Group? Do not use her optimal hours of work for each wage. j) When Sally goes from D-Town to Regis Medical Group, the (implicit) wage she faces changes. What are the substitution and income effects according to her optimal amounts of labor supplied at these implicit wages? Express these effects in hours of Leisure (L).Come January, Sally realizes that she is eligible for an Earned Income Tax Credit. The bracketsthat apply to her (as a single, childless woman) are as follows: for annual incomes above $1, theworker receives a 40% credit that is maximized at $500. The full credit is limited to incomesbelow $13,500, above which the worker’s credited-income is taxed at a flat rate of 20%. (Thelevel of income at which the credit is completely phased out is for you to determine.) k) What is Sally’s after-tax income—that is, with the EITC? Assume that, because EITC is based on earned income, her $600/month non-labor income does not factor into the EITC brackets. Also, since we are using annual amounts, your value of T will be based on 496 hrs per 48 weeks of the year. Hint: you need to figure out level of income at which the credit is completely phased out. l) By how much does she change her hours of labor supplied in response (if at all) to the EITC? Hint: you may have reasoned that, because of her preferences, the only likely shift
- 4. in her hours would be to that level which renders an income of $13,500. So, check her utility at this level of income and see if this is greater than her utility at $30,000 and 40 hrs of labor. Question 2. Answer the following questions using the Bureau of Labor Statistic’s Employment Situation Report of to be released Friday, October 7th, 2011. (a) Ignoring the revisions of population estimates introduced by this Report, fill in the table below using the Household Data (“Summary Table A” will be sufficient). (b) (c) (b) What happened to the Participation Rate since over the past year? (d) (c) Why isn’t the absolute change in Employed the negative of the change in Unemployed? (e) (d) Did the amount of workers in the Labor Force increase or decrease over the past year? By how much? (f) (e) Did the amount of workers Not-In-The-Labor Force increase or decrease over the past year? By how much? (g) (f) Why isn’t the change in the Labor Force (LF) the negative of the change in the stock of ~LF? (h) (g) Is it possible that part of the increase in Population went into Unemployment? Why or Why not? (i) (h) How is it possible for the Population to increase less than the stock of people Not-in- the-Labor Force? Does this mean all of the new people in the population went into ~LF? (j) (i) What was the change in Employment between August 2011 and September 2011 according to the Household Data? (k) (j) What was the change in employment between August 2011 and January 2011 as measured by the over-the-month change in the Establishment Data (the total non-farm employment of Summary Table B is sufficient)? (l) (k) What would the Unemployment Rate be for September 2011 if the value of Employed (E) was taken from the Establishment Data (seasonally adjusted total non- farm employment on Table B-1), while the value of Unemployed (U) was taken from the Household Data?Labor Employed Unemploye Unemploy Not-in-the Population Participati EmploymeForce (LF) (E) d (U) ment Rate Labor on Rate nt Force Population (~LF) Ratio09/2010:09/2011:Changes:Percent change:

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