Contemporary Labor Economics
11th Edition
ISBN: 9781259290602
Author: Campbell R. McConnell, Stanley L. Brue, David Macpherson
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 2, Problem 8QS
To determine
Define reservation wage and the impact of reducing (or increasing) value of leisure time on labor force participation.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
1.
6.
Consider an individual who initially works T-L. hours per week, where (T-L.)>0. They earn an
hourly wage (W) and no non-labour income.
a) Draw a graph that reflects this individual's income-leisure constraint, utility-maximizing
indifference curve (U.) and choice of leisure hours (L).
b) The government then implements a wage subsidy program in which worker wages are
increased by 10%. This wage subsidy program has no limits, so there is no phase-in/out.
This wage subsidy produces both an income effect and a substitution effect on the worker's
choice of leisure hours. Assume that the substitution effect is stronger than the income
effect.
On the same graph as parta, draw this individual's new income-leisure constraint, utility-
maximizing indifference curve (U.) and choice of leisure hours (Ls).
[Note: When incorporating the 10% wage subsidy into the graph in part b, I am not
expecting perfect precision. Just try your best to draw the new income-leisure constraint as
though a 10%…
Joanne states: "The best way to increase the wages of workers is to increase workerproductivity." Is Joanne correct? Why or why not?
You have two choices in jobs. Job A means you earn $70,000 a year, in an area where the average income is $80,000. Job B means you earn $60,000 a year in an area where the average income is $50,000. Assume all other factors such as housing quality, schooling, etc are the same. A "rational profit maximizer" would:
Have an indeterminate choice.
Be indifferent between the two wages.
Always choose the lower wage.
Always choose the higher wage.
Chapter 2 Solutions
Contemporary Labor Economics
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- How does skill atrophy provide an explanation for differentiation in earnings?arrow_forwardWhat is two factors that may influence the shape of individuals’ indifference curves (flat or steep) which reflect their preferences for work or leisure? What is the difference between income effect and substitution effect under the basic work-leisure decision model?arrow_forwardA significant number of economists assume that that typical workers initially increase their labor supply when their wage increases but ultimately they decrease their labor supply when their wage gets higher. Show on two different graphs with indifference Curves and budget line, showing labor income tradeoff, how a worker that increases its labor supply when wage increases from a worker that decreases his labor supply. Do you think the assumption above is a reasonable assumption? Explain your answer.arrow_forward
- A significant number of economists assume that that typical workers initially increase their labor supply when their wage increases but ultimately they decrease their labor supply when their wage gets higher. Show on two different graphs with indifference curves and budget line, showing labor income tradeoff, how a worker that increases its labor supply when wage increases from a worker that decreases his labor supply.Do you think the assumption above is a reasonable assumption? Explain your answer.arrow_forwardConsider 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.arrow_forwardwhat happens to hours of labor when the reservation wage rate increases? What happens to hours of labor when the reservation wage rate decreases? Graph it with an indifference curve, budget constraints, and reservation wage.arrow_forward
- Why can welfare programs, if not managed correctly, create work disincentives?arrow_forwardConsider 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 Suppose the worker participates in the labour market. Derive worker’s compensated labour supply function and the compensated labour supply elasticity with respect to wage as a function of utility level and wage.arrow_forward20. Consider the following graph of indifference curves between risk (P = probability of injury) and wage (w). Use our Hedonic Wage Function approach (from Ch. 5). In either case (the steeper or flatter indifference curve, ), suppose the individual starts with wage wo and probability of injury P = 0.4. W W ° steeper U flatter 0.4 0.5 ρ Which of the following statements is accurate? From the stated starting point, O none of the other options. O the compensating differential required to get a willingness to take on an increase in risk from 0.4 to 0.5 is larger for the case of the flatter indifference curve. ○ we would expect to see a person with the flatter indifference curve in jobs with a lower probability of injury than the person with the steeper one. O the flatter indifference curve indicates a lower willingness to put up with an increase in risk from 0.4 to 0.5. O the steeper indifference curve indicates a lower willingness to put up with an increase in risk from 0.4 to 0.5.arrow_forward
- What is the value of a worker's life if her compensating differential is $20,000 for a job that has a 2% higher risk of death each year?arrow_forwardThe below graph shows the optimal asking wage. Suppose another individual with the same wage opportunities is more “future-oriented”. Adjust the graph to show the impact this will have on the asking wage and the length of his job search:arrow_forwardSuppose 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.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education