ECON 115 - Labor Economics Drake University, Spring 2012 William M. Boal Course page: www.drake.edu/cbpa/econ/boal/115 Blackboard: bb.drake.edu william.boal@drake.edu

### Version A

I. Multiple choice

(1)b. (2)b. (3)b. (4)a. (5)b. (6)e. (7)c. (8)a. (9)d. (10)c.
(11)a. (12)b. (13)c. (14)a. (15)d. (16)b. (17)c. (18)a. (19)b. (20)a.

II. Problems

(1) [Measuring the labor force: 8 pts]

1. working-age population = 226.1 million.
2. unemployment rate = 5.0 percent.
3. employment-to-population ratio = 62.8 percent.
4. labor force participation rate = 66.1 percent.

(2) [Labor supply: 12 pts]

1. reservation wage = \$3.
2. C = 800 - 10 L.
3. L* = 39 hours, C* = \$410.
4. Hours of work = 21 hours.

(3) [SR labor demand: 12 pts]

1. E* = 1600.
2. q = 2400.
3. profit = \$15,000.

(4) [LR labor demand: 4 pts] Industry A has more elastic demand for labor because its elasticity of demand for output is greater (Hicks-Marshall rules).

(5) [Payroll tax: 14 pts]

1. 80 million.
2. \$15.
3. \$12.
4. \$85 million.
5. \$170 million.
6. \$240 million.
7. \$15 million.

(6) [Cobweb model: 12 pts]

1. E = 4000, w = \$40.
2. w = \$70.
3. E = 7000, w = \$55.
4. E = 5500, w = \$62.50.
5. E = 6250, w = \$58.75.
6. E = 6000, w = \$60.

(7) [Monopsony: 6 pts]

1. E = 1200.
2. w = \$7.
3. E = 1400.

(8) [Immigration surplus: 8 pts]

1. w = \$15.
2. w = \$13.
3. immigration surplus = \$20 million.
4. transfer = \$300 million.

(9) [Value of a statistical life: 4 pts] \$5 million.

(10) [Simple model of schooling decision: 10 pts]

1. \$567,391.
2. \$558,696.
3. Choose "no college."
4. r = 10 percent.
5. Choose "college."

(11) [Measuring inequality: 14 pts]

1. Lorenze curve has kink point where percent of population = 60 percent and percent of earnings = 36 percent.
2. Gini = 0.24.
3. 90-50 wage gap = 167 percent.
4. 50-10 wage gap = zero.
5. 90-10 wage gap = 167 percent.

(12) [Oaxaca decomposition: 6 pts]

1. 0.9.
2. 0.6.
3. 0.3.

(13) [Household production-possibility curve: 10 pts]

1. Market goods" intercept=\$300, "Household services" intercept=250, kink point with market goods=\$200 and household services=150.
2. 5 hours.
3. 0 hours.

(14) [Monopoly union model: 4 pts]

1. w* = \$25.
2. E* = 1500.

(15) [Mandatory retirement: 6 pts]

1. wage = VMP at t = 10 years.
2. mandatory retirement at t = 20 years.
3. loss = \$25,000.

(16) [Markov model: 10 pts]

1. 0.03.
2. 0.27.
3. 3 percent.
4. 27 percent.
5. steady-state unemployment rate = 10 percent.

### Version B

(1)c. (2)c. (3)a. (4)b. (5)c. (6)b. (7)a. (8)c. (9)d. (10)c.
(11)d. (12)a. (13)d. (14)b. (15)d. (16)b. (17)d. (18)a. (19)c. (20)b.

II. Problems

(1) [Measuring the labor force: 8 pts]

1. working-age population = 237.8 million.
2. unemployment rate = 9.5 percent.
3. employment-to-population ratio = 58.4 percent.
4. labor force participation rate = 64.6 percent.

(2) [Labor supply: 12 pts]

1. reservation wage = \$2.
2. C = 1275 - 15 L.
3. L* = 49 hours, C* = \$540.
4. Hours of work = 26 hours.

(3) [SR labor demand: 12 pts]

1. E* = 900.
2. q = 600.
3. profit = \$1,000.

(4) [LR labor demand: 4 pts] Industry B has more elastic demand for labor because its elasticity of substitution in production is greater (Hicks-Marshall rules).

(5) [Payroll tax: 14 pts]

1. 70 million.
2. \$16.
3. \$10.
4. \$160 million.
5. \$320 million.
6. \$420 million.
7. \$60 million.

(6) [Cobweb model: 12 pts]

1. E = 4000, w = \$40.
2. w = \$100.
3. E = 10,000, w = \$70.
4. E = 7000, w = \$85.
5. E = 8500, w = \$77.50.
6. E = 8000, w = \$80.

(7) [Monopsony: 6 pts]

1. E = 1800.
2. w = \$10.
3. E = 2200.

(8) [Immigration surplus: 8 pts]

1. w = \$15.
2. w = \$10.
3. immigration surplus = \$45 million.
4. transfer = \$450 million.

(9) [Value of a statistical life: 4 pts] \$7.5 million.

(10) [Simple model of schooling decision: 10 pts]

1. \$544,782.
2. \$551,304.
3. Choose "college."
4. r = 20 percent.
5. Choose "no college."

(11) [Measuring inequality: 14 pts]

1. Lorenze curve has kink point where percent of population = 70 percent and percent of earnings = 28 percent.
2. Gini = 0.42.
3. 90-50 wage gap = 500 percent.
4. 50-10 wage gap = zero.
5. 90-10 wage gap = 500 percent.

(12) [Oaxaca decomposition: 6 pts]

1. 0.5.
2. 0.2.
3. 0.3.

(13) [Household production-possibility curve: 10 pts]

1. Market goods" intercept=\$350, "Household services" intercept=250, kink point with market goods=\$150 and household services=200.
2. 5 hours.
3. 10 hours.

(14) [Monopoly union model: 4 pts]

1. w* = \$15.
2. E* = 500.

(15) [Mandatory retirement: 6 pts]

1. wage = VMP at t = 15 years.
2. mandatory retirement at t = 30 years.
3. loss = \$100,000.

(16) [Markov model: 10 pts]

1. 0.97.
2. 0.53.
3. 3 percent.
4. 47 percent.
5. steady-state unemployment rate = 6 percent.