# Solutions to Chapter 2 Labour Economics Essay

1721 WordsFeb 8, 20137 Pages
Chapter 2 Exercises Solutions Answer to end of chapter questions: 2. The labour force is calculated as the sum of the employed and the unemployed, which in this case is 22,000,000 + 1,000,000 = 23,000,000. The labour force participation rate is calculated as the ratio of the labour force to the working age population: 23,000,000 / 30,000,000 = 77 %. The unemployment rate is calculated as the ratio of the number of unemployed workers to the size of the labour force: 1,000,000 / 23,000,000 = 4.3 %. 4. a) The poor who are at minimum subsistence and who aspire to middle class consumption patterns: This group values income highly relative to leisure, so the indifference curve is relatively flat. As the wage increases, the income…show more content…
At the same time, they become richer, and can maintain the living standard while purchasing more leisure. That effect pushes her to work less. The net effect of +18 induces them to work more. d) According to this equation, it would lead to a net increase of 25 percentage points. The pay cut for the husband would increase the labour force participation of wives, as they have to work more to maintain living standards. e) We are given no information on the hourly wage, so technically we cannot answer this question. The variables which appear in this equation for expected earnings include both wages and hours worked. For the less precisely defined quantities of uncompensated and the pure elasticities for expected income, the former is 18*(6/35), and the latter is 25*(6/35). We use only the coefficient pertaining to the wife for these 'own' elasticities. f) Yes it does. The total effect of the expected earnings of women on their labour force participation far outweighs the negative income effect of non-labour income earned by their husbands. As the returns from working for women increased a lot in recent decades, the labour force participation rate increased. The main reason is a substitution effect that dominated the income effects from both earners on women's labour force participation. 6. a) For this case, we assume that the husband continues to work 40 hours per week, or 8 hours per