LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Question
Chapter 6, Problem 10P
To determine
The decision taken by the individual in period 1.
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In our discussions of life-cycle models we often assume people are earning income, Y, from the present until time R. However, as we all know, often people spend time in school before entering the workforce. Assume that Ahmad is in school until their graduation at time G.
(We assume they have a full-ride scholarship, but no time for a part-time job, so school costs the Ahmad nothing but also they earn nothing while in school).
Once they are done school they earn income Y each period until retirement at time R.
In the present period Ahmad has W= 0 (i.e they have no initial money in the bank). Further assume that Ahmad’s β = 0 and the the interest rate is zero (r = 0), or in other words, the Ahmad wants to perfectly smooth its consumption over their lifetime.
Draw a figure to show how income, consumption, and money in the bank evolve over time for this scenario.
Propose an econometrics model to assess
students' achievement and their future
income to evaluate your postulate.
Suppose John has 24 hours in a day. He can spend his time either working at his job where he earns $20 per hour, or he could spend it doing leisure (everything else, including sleeping).
a) Using the labor-leisure choice model, draw a graph that shows his optimum labor supply would be 10 hours a day (with $0 non-labor income). Make sure your graph is completely labeled. b) On the same graph, show what would happen if he receives $100 a day in non-labor income. Breifly explain what is happening in words.
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- Suppose John has 24 hours in a day. He can spend his time either working at his job where he earns $20 per hour, or he could spend it doing leisure (everything else, including sleeping). a) Using the labor-leisure choice model, draw a graph that shows his optimum labor supply would be 10 hours a day (with $0 non-labor income). Make sure your graph is completely labeled. b) On the same graph, show what would happen if he receives $100 a day in non-labor income. Breifly explainarrow_forwardDescribe the effect that higher income has on life expectancy in terms of relative length and resources.arrow_forwardMarie is about to choose a career path. She can either become a certified public accountant or a high school teacher. Marie lives two periods. In the first, she gets an education. In the second, she works in the labor market. If Marie becomes a certified public accountant, she will spend $45,000 on education in the first period and earn $500,000 in the second period. If she becomes a high school teacher, she will spend $30,000 on education in the first period and then earn $400,000 in the second period. Suppose Marie can lend and borrow money at a 5 percent rate of interest between the two periods. a) Which career will she pursue? b) What if she can lend and borrow money at a 15 percent rate of interest?arrow_forward
- In the chart below for 2020 income tax brackets it shows information for single and married persons. Which statement about income tax rates below is true? SINGLE MARRIED, FILING JOINTLY INCOME RANGE TAX INCOME RANGE TAX $0- $9,275 10% $0- $18,550 10% $9,276 - $37,650 15% $18,551- $75,300 15% $37,651 - $91,150 25% $75,301- $151,900 25% $91,151 - $190,150 28% $151,901 - $231,450 28% $190,151 - $413,350 33% $231,451-$413,350 33% $413,351 - $415,050 35% $413,351-$466,950 35% $415,051+ 39.6% $466,951+ 39.6%arrow_forwardConsider an individual who lives for three periods. In the first period, the individual may either work or go to school, but not both. In the second and third period, the individual will work regardless of what their decision for the first period was. If the individual decides to work in the first period, then he/she will earn $40 in period 1, $50 in period 2, and $60 in period 3. If the individual decides to go to school in period 1, then she has to pay $100 in period 1; however, his/her earnings in period 2 will be $125 and in period 3 will be $275. Suppose that th discount or interest rate is constant at 7%. (Hint: period 1 refers to today and therefore does not require discounting) a) Calculate the present value, if the individual chooses to work in the first period. b) Calculate the present value, if the individual chooses to go to school in the first period. c) Should the individual acquire education or not? d) Explain how the cost of education will influence the individual's…arrow_forwardWhat factors influence an individual's decision to allocate time between work and leisure in the context of the work-leisure model?arrow_forward
- Show how to arrive to Equation (8.16) of the textbook, and then find the optimal amount to spend on education E and the number of children m. Provide a brief interpretation about how these equation help understand the demographic transition.arrow_forwardFrom what I understand, LBC with work-leisure is c_1 + c_2 / (1+r) = w_1(h-l_1) + w_2(h-l_2) / (1+r). When I manipulate this equation, I get all three of them, which is perplexing since apparently not all of them are correct.arrow_forwardOne proposal includes increasing the EITC for childless workers to provide additional assistance for many poor workers. While an increase in the EITC would increase resources to qualifying childless workers, what impact will it have on their working decision? Assume a basic hours towards leisure and income towards consumption model. a. If qualifying childless workers already have a strong preference to work so they are already choosing to work (ex: 10 hours), an increase in the EITC could lead to a new choice involving fewer hours spent working, more hours spent towards leisure and more income towards consumption. Thus, the EITC expansion could discourage work. b.If qualifying childless workers already have a strong preference to not work so they are already choosing to work very littleand mostly enjoy leisure, an increase in the EITC could lead to a new choice involving more hours spent working, fewer hours spent towards leisure and more income towards consumption. Thus, the…arrow_forward
- Why does the rate of return from education in surveys tend to lean bias upwards or downwards?arrow_forwardUsing the economic theory of fertility, analyze the expected impact of the total fertility rate and women’s labour supply of the following: a) An increase in women’s wages.b) Elimination of the family allowance for high income women. c) An increase in the deduction for child care expenses.d) Increasing educational levels for women.arrow_forwardConsider the following Labour-Leisure Choice model. Utility function over consumption (C) and leisure (L) 1 3 U(CL) = cL4 Total hours H = 20 Labour hours: N = H-L Non-labour income: 1 = 20 Lump-sum tax T= 10 Hourly wage w = 3 Suppose that the hourly wage increases to 5 What is the substitution effect of this wage change on labour supply(N)? A. -1.10 B. -2.10 O C. +1.10 OD. +2. 10 O E. None of the abovearrow_forward
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