Contemporary Labor Economics
11th Edition
ISBN: 9781259290602
Author: Campbell R. McConnell, Stanley L. Brue, David Macpherson
Publisher: McGraw-Hill Education
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Chapter 2, Problem 10QS
To determine
Explain the statement regarding premium wages and straight-time equivalent wage rate.
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Suppose there are two identical job offers in the same competitive labor market for a software developer position. Both offers have the same salary of $80,000 per year. However, Job A allows the employee to work from home, while Job B requires the employee to commute to the office daily. The average monthly commuting cost for Job B is estimated to be $400.
Calculate the compensating differential in this scenario, and determine if it makes economic sense for the employee to choose Job B over Job A.
Assume a working year consists of 12 months.
Suppose a worker is offered a wage of $5 per hour, plus a fixed payment of $40. What is the equation for the worker’s opportunity set in a given 24-hour day? What are the maximum total earnings the worker can earn in a day? The minimum? What is the price to the worker of consuming an additional hour of leisure?
Suppose that following represents the utility function of the individual
U(c,l)=log(c)+log(l)
c = consumption level of the individual and l = leisure, while the market wage is 10 and available time is 20.
1) Find and draw the labor supply function.
2) Suppose that the government introduces a cash grant for the labor (who is in the labor force) in the amount of R. Find and draw the labor supply function? Compare it to the labor supply function you have found in a).
3) Discuss the existence of reservation wage in the settings described in a and b? If your answer is : “there are no reservation wages under those settings”, please introduce a change in the policy described in b) to make sure that the reservation wage would exist.
Chapter 2 Solutions
Contemporary Labor Economics
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