1. Consider Spence job market signaling model. A worker's type is 0 = {6, 9}, where the probability that 0 = 9 is equal λ = (0, 1). The total number of workers equals N. The productivity of a worker in a job is 0. Each worker chooses a level of education e≥0. The cost of obtaining education level e is 3e/0. Reservation utility is 4 for every worker. All workers are price takers and the price of the final good produced is 1. Assume that firms are risk neutral and employment lasts for one year. Assume that there are two firms that compete by offering wages simultaneously and independently. (a) Find all separating equilibria and identify a Pareto superior separating equilibrium. Do not forget to specify the equilibrium wage scheme. (b) Calculate TS and find the value of society loss (DWL) for the best (Pareto superior) signaling equilibrium. (c) Find all values of λ= (0, 1) under which prohibition of signaling results in a Pareto improvement in comparison with the best (Pareto superior) signaling equilibrium. Explain the result intuitively.

QUESTION 16 Suppose workers can be divided into two groups: high and low skill workers. Let y be the number of years of college education of a worker. For workers in Group A (high skill workers) the cost of attaining an educational level y is CÃ(y)=$25y; for workers in Group B (low skill workers) the cost of attaining an educational level y is CB(y)=$65y. Employees will be offered $410 if they have y ≥ y*, where y* is an educational threshold determined by the employer. They will be offered $50 if they have y y* z

Studies by Edwards and Meyer show that employers and teachers value different personality traits. In particular employers put a high value on creativity andindependence. True False

In the no-shirking model, the expected payoff of the worker who shirks is (1 t)w + tjB + t(1 − j)(w – u) Explain what each of the following component in the formula represents: (1-t) is... w is... t is ... jis.. B is... (1-j) is... (w - u) is... Choose... Choose... Choose... Choose... Choose... Choose... Choose... the probability of finding another identical job if fired. the probability that shirking is not detected by the employer. the payoff of a worker who shirks and is not detected. ♦ ◆ ♦ ◆ the value of a job in equilibrium. the probability of remaining unemployed if fired. the unemployment benefit. the probability that a shirking worker is detected by the employer and fired.

Classify each statement as true or false. < O Feedback At least one of the statements is Discrimination based on gender, race, or other factors widens classified incorrectly. Pushing people False income gaps by shifting labor supply curves. from job A into job B means fewer available workers in category A and There is an income 'risk premium' for risk-takers, but not all entrepreneurs receive it. more in B. True Having wealthy parents can lead to advantages regarding income. True Answer Bank Requirements for cosmetology licenses, taxi medallions, and admission to the bar for lawyers, all tend to increase wages in those occupations. False True False Because the level of education a person pursues is a personal choice, economists do not emphasize it when analyzing income inequality. True Economists generally do not consider artistic talent as a factor in income inequality. False Incorrect

Consider worker 1 with non-labour income Y facing a wage offer w and a utility function defined over consumption and leisure U(c,l) = lnC + 4lnl 1) Provide the functional form of the income effect from a marginal decrease in income. 2) Provide the functional form of the substitution and total income effects of a marginal increase in wage. 3) Show that the Slutsky equation holds for this worker.

2. Consider a version of the labor market model of Pissarides (1985) in which the matching function M(u, v) is M(u, v) = u+ v and the discount factor 3 is one. (a) Derive an expression for the worker's job-finding probability p(8) and for the firm's worker-finding (or job-filling) probability, q(8). (b) Express the equilibrium market tightness 0 in terms of the parameters of the model, k, 5, 7, b, and (c) Express the equilibrium unemployment u* in terms of the parameters of the model. (d) Compute the effect of a small increase in the productivity of labor y on the equilibrium market tightness 0. Explain your findings. (e) Compute the effect of a small increase in the productivity of labor y on the equilibrium unem- ployment. Explain your findings.

Homothetic preferences cannot be quasi - linear. True or False

Question4-5

Consider worker 1 with non-labour income Y facing a wage offer w and a utility function defined over consumption and leisure. U(c,l) = lnC + 4lnl Queston: Show that the Slutsky equation holds for this worker