Examine the table below which contains some labour market data for the Bahamas (2009 - 2014) and answer the questions which follow. Year Avg. monetary labour income for workers in their main occupation in the last month, PPP Avg. monetary labour income for formal workers in their main occupation in the last month, PPP Avg. monetary labour income for informal workers in their main occupation in the last month, PPP Unemployment Rate Monthly Minimum Wage, PPP 2009 2,069.32 1,774.19 3,450.47 13% 770 2011 1,992.92 1,836.31 2,663.86 15% 770 2012 1,818.44 14% 770 2013 1,614.73 1,604.85 1,652.05 14% 770 2014 1,674.15 1,593.31 2,055.34 14% 770 a. Given the theorized relationship between the unemployment rate and the minimum wage in the static model of the labour market, how should the unemployment rate respond to a constant minimum wage? b. How does this compare to the data shown in the table? Explain. c. Note that there is a difference in income depending on employment in the formal sector and that these incomes are different from the minimum wage. Using the theory of compensating wage differentials and other reasons, explain why the wages might vary for workers in the formal sector versus the informal sector.

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter8: Economic Fluctuations, Unemployment, And Inflation

Section: Chapter Questions

Problem 7CQ

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Examine the table below which contains some labour market data for the Bahamas (2009 - 2014) and answer the questions which follow.

Year	Avg. monetary labour income for workers in their main occupation in the last month, PPP	Avg. monetary labour income for formal workers in their main occupation in the last month, PPP	Avg. monetary labour income for informal workers in their main occupation in the last month, PPP	Unemployment Rate	Monthly Minimum Wage, PPP
2009	2,069.32	1,774.19	3,450.47	13%	770
2011	1,992.92	1,836.31	2,663.86	15%	770
2012	1,818.44			14%	770
2013	1,614.73	1,604.85	1,652.05	14%	770
2014	1,674.15	1,593.31	2,055.34	14%	770

a. Given the theorized relationship between the unemployment rate and the minimum wage in the static model of the labour market, how should the unemployment rate respond to a constant minimum wage?

b. How does this compare to the data shown in the table? Explain.

c. Note that there is a difference in income depending on employment in the formal sector and that these incomes are different from the minimum wage. Using the theory of compensating wage differentials and other reasons, explain why the wages might vary for workers in the formal sector versus the informal sector.

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