Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 7, Problem 10E
To determine
The graphical explanation for the decline of wage rate.
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According to a 2016 article in the Wall Street Journal, “After years of relative equilibrium, the job market for nurses is heating up in many markets, driving up wages and sign-on bonuses for the nation’s fifth-largest occupation.” Many nurses who previously delayed their retirement due to the 2008 recession had begun to retire, resulting in a retirement wave that caused nurses to exit the workforce in greater numbers than new nurses were entering. At the same time, demand for nurses had increased due to the additional health care coverage associated with job growth over the previous decade since the recession and the Affordable Care Act.
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Supply: Thinking Like a Seller - End of Chapter Problem
Jerome is working as an IT consultant. His individual labor supply curve is given in the accompanying graph. Jerome decides to
enroll in college and will begin taking classes next semester.
Make the appropriate change to the graph to show the most likely effect on Jerome's labor supply curve of his decision to attend
college. If Jerome's decision to attend college results in a change in supply, shift the supply curve appropriately, but leave the
wage line unchanged. If Jerome's decision to attend college results in a change in quantity supplied, adjust the wage line
appropriately, but leave the supply curve unchanged.
Wage
Jerome's individual labor supply curve
Wage
Quantity
Supply
Below are three examples of an individual experiencing a wage change at various points in
their career:
i) After five years of working with their current employer, the individual received a
scheduled increase in their hourly wage.
ii) In celebration of the firm's 50th anniversary, the individual's employer increased the
hourly wage of all employees for the month of February.
iii) After a particularly profitable year, the individual's employer increased the hourly
wage of all employees.
Assume that each wage change generated the same sized substitution effect. Which of the
three wage changes do we expect will least motivate the individual to increase their hours
worked? Explain.
Chapter 7 Solutions
Macroeconomics (Fourth Edition)
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- The following utility function represents Rose's preference over consumption and leisure u(c, l) = √c + 4√l. Rose receives a real wage of 15 and a non-wage income of 2. As a qualified recipient, Rose gets an additional non-wage income of 5 from the government through a cash transfer program. What is Rose's optimal choice of labor supply?arrow_forward1. Computing labor productivity and its relationship to the demandfor labor Sizzler's produces charcoal grills in a small manufacturing facility and sells the grills in a competitive market. The following table presents the company's production function: Labor (Number of workers) 0 OUTPUT (Grills) 400 360 320 280 Use the blue points (circle symbol) to plot the production function for Sizzler's on the following graph. 240 200 160 120 80 40 0 1 0 2 3 4 5 1 Output (Grills) 0 95 185 260 320 355 2 3 LABOR (Number of workers) 4 5 Production Function (?) Calculate the marginal product of labor (MPL) of each worker, and then plot the MPL curve on the following graph using the blue points (circle symbol).arrow_forwardAccording to the BLS, wage rates in Mexico are only about 10% of those in the US. What factors would determine whether your firm should shut down its plants in the US and relocate to Mexico, or continue to produce in the US?arrow_forward
- Based on your explanation question 1 above, discuss how that relationship between the elasticity of demand for products and labor would affect your job searching strategy in the future.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 $400. Calculate the compensating differential in this scenario, and determine if it makes economic sense for the employee to choose Job B over Job A. Assume a working year consists of 12 months.arrow_forwardIan works at an iron smelter in Pittsburgh, the center of iron production in America. Due to the difficulty in measuring the productivity of individual employees, Ian's employer as well as the other iron smelters all pay an efficiency wage. Adjust the wage line on the graph to reflect this situation. What characteristic of efficiency-wage jobs is not supported by the situation shown in the graph? The wage rate will eventually return to the market-clearing level. Efficiency wages result in an increase in the rate of unemployment. Elevated wages serve as an economic incentive to work harder. Efficiency wage jobs result in a surplus of workers at the wage being offered. Wage ($ per hour) Wage Quantity of workers (in thousands) S Oarrow_forward
- 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.arrow_forward1. 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%…arrow_forwardDarla gets her utility from consumption C and leisure L. The most leisure she can consume in any given week is 110 hours. Her utility function is U(C, L) = C x L. This implies that Darla’s marginal rate of substitution is C / L Darla receives $750 each week from her grandparents–regardless of how much she works. What is Darla’s reservation wage?arrow_forward
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