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 8QS
To determine
Define reservation wage and the impact of reducing (or increasing) value of leisure time on labor force participation.
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How is the market-compensating wage differential between safe jobs and risky jobs determined? Which type of job will offer a higher wage?
The absolute value of the slope of the consumption-leisure budget line is the after-tax wage, w. Other workers earn w for up to 40 hours of work each week, and then w thereafter as at a second job which pays the same hourly wage as than their primary job.
Assume a worker has 168 hours per week and chooses to work 40 hours at the primary job and does not work at a second job. Graph the worker’s budget line and leisure and income at the utility-maximizing level.
Assume the primary employer offers the worker an opportunity to earn time-and-a-half working overtime. The overtime pay kicks in after the employee works 40 hours. Graph the old and new budget line and indicate both the number of hours worked and the income earned.
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.
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Contemporary Labor Economics
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- How does skill atrophy provide an explanation for differentiation in earnings?arrow_forwardMajor conclusions that can be drawn from the Hedonic theory of compensating wage differentials.arrow_forwardAfter controlling for age and education, it is found that the average woman earns $0.80 for every $1.00 earned by the average man. After controlling for occupation to control for compensating differentials (i.e., maybe men accept riskier or more stressful jobs than women, and therefore are paid more), the average woman earns $0.92 for every $1.00 earned by the average man. The conclusion is made that occupational choice reduces the wage gap 12 cents and discrimination is left to explain the remaining 8 cents.a. Explain why discrimination may explain more than 8 cents of the 20-cent differential (and occupational choice may explain less than 12 cents of the differential).b. Explain why discrimination may explain less than 8 cents of the 20-cent differential.arrow_forward
- List the six factors that can explain a variance in earnings. Select ONE factor and list two reasons why this you believe this factor has the most influence in wage differences. Why is the price elasticity of supply different for low mobility workers and high mobility workers? In proving that there are earnings differentials caused by discrimination, what three factors are necessary in a study conducted to prove this point?arrow_forwardDiscuss how the wage-schooling locus is determined in the labor market, and why it is upward sloping and concave.arrow_forwardExplain how the method of instrumental variables can be used to estimate the compensating differential associated with employer-provided health benefits.arrow_forward
- Some types of cash grants are provided only to beneficiaries who are out of the labour force. Discuss the effect of these types of grants on work incentives, and illustrate graphically its effect on low salaried workers, with respect to decision to stay or leave the labour forcearrow_forwardConsider worker 1 with non-labor income Y facing a wage offer w and a utility function defined over consumption and leisure U(c,l) = lnC + 4lnl Compare worker 1 with worker 2 whose utility function is described by U(c,l) = cl. Which worker places a higher value on labor market work?arrow_forwardWhat is statistical discrimination? Why do employers use group membership as an indicator of a worker’s productivity? What is the impact of statistical discrimination on the wage of the affected workers? Must statistical discrimination reduce the average wage of blacks or women?arrow_forward
- Discuss how upward-sloping age-earnings profiles can elicit more effort from workers.arrow_forwardDerive the Oaxaca measure of discrimination. Does this statistic truly measure the impact of discrimination on the relative wage of the affected groups?arrow_forwardTo which of the following job characteristics could the hedonic wage function be applied? a. the degree to which a job involves monotonous work b. the degree to which the area surrounding the job location is safe c. the degree to which a job involves strenuous work d. the probability of being injured on the job e. All of these can be represented with a hedonic wage function.arrow_forward
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