NOTE: * Indicates that a graph is required.

1. Using material in Chapter 6 on labor supply answer the following:

*a. Assume a worker who has a full-time job (40 hours a week) desires to work more hours in another job (moonlighting). Show how this person will maximize utility and call this point A. Suppose that firms offer this worker two choices: (1) 40 hours of work (call it point B) or (2) 0 hours of work. Will this worker be better off or worse off at point B? Graph and explain.

*b. Using the analysis from part a., suppose some firms now offer moonlighting workers a lower wage than their primary job pays. Can this increase the utility of workers who want to work more hours than they are at point B? Show and explain. (Hint: Start the new budget line at point B.)

*c. Using the graphical framework established in class, show and explain how some workers can be induced onto the welfare roles when government changes the implicit tax rate from 100% to 67%. Then explain what happens to these workers when government reverses this policy (going from 67% to 100%). Be sure to use the income and substitution effects as part of your explanation.

*a. Using the signaling model, do the following: If the government reduces subsidies to college education, how will this affect peoples' decisions to go to college and how will employers respond? Explain.

b. Explain the following:

(1) Given the work-family-work life cycle of the 'traditional' woman, it would be rational for such women to invest in less education than men.

(2) Suppose Congress passes a law requiring all persons aged 18 to enroll in a program of universal national service for 4 years. How will this affect the returns from investment in higher education? Explain.

(3) Suppose firms require all employees to retire at age 65; now suppose Congress passes a law prohibiting firms from requiring retirement at age 65. Explain how this affects the return from investment in higher education.

*(4) Suppose that college tuition is reduced to zero and textbooks are provided free of charge. Once equilibrium levels of college attendance are reached, what earnings differential would we expect to see between college grads and high school grads? Show and explain.

c. Suppose an unskilled worker who currently earns $20,000 a year enrolls in a community college (CC) for one year. Tuition and books cost him $2,000. After finishing his courses at the CC, he gets a job paying $25,000 a year. Suppose that this job lasts for 10 years and this worker retires at the end of this 10 year period. Assuming the interest rate is 6%, is this a good investment? (Hint: Use the annuity formula in the text or lecture.) What if the interest rate is 10%?

*a. Assume that equilibrium wage differentials have been established between U.S. and Mexican low-wage labor markets. Explain how each one of the following policies will affect these two labor markets and the wage differential:

(1) Employer sanctions (fines) for hiring illegal aliens.

(2) Direct fines for illegal aliens when they are caught.

(3) Increased Border Patrol activity.

*b. Assume that equilibrium wage differentials have been established between U.S. and Mexican low-wage labor markets. Explain how a recession in the U.S. will affect this wage differential and the flow of immigrants between these two countries.

*c. Assume that two countries (U.S. and Korea) have a disequilibrium wage differential between their labor markets that cannot be eliminated because of a limit on immigration (such as immigration quotas). If Korean imports into the U.S. are lower-priced (in relative-price terms) than U.S. goods, show and explain what effect this will have on these two labor markets and the wage differential between them.

*d. How will an increase in the minimum wage affect immigration into this country? Explain using two low skilled labor markets (assume complete coverage for US market).

*a. Using the rent-seeking model show what happens to the rent when unionized industries are declining. (Hint: The demand curve will decrease and become more inelastic.)

*b. Using a two sector model with a union labor market and a non-union labor market, show how unions in the home construction industry fared when they increased their wages a great deal in the 1970s by restricting the supply of union labor. (Hint: Use an inelastic demand for the SR and an elastic curve for the LR.)

*c. The West Coast Longshoremen had work rules which required shipping companies to have a crew on board a ship when it was unloading and a crew on the dock. Show how this featherbedding arrangement affected the demand for union labor and the rents that longshoremen unions received.

(1) Show what happened when the shipping firms introduced containerization. (Hint: Containerization is a technological change in which capital is a gross substitute for labor-containerization makes loading and unloading ships very easy compared to the labor intensive methods of using union labor.)

(2) Why did the unions oppose containerization?

*d. Show what happens when the riskiness of union jobs increases. (Hint: Be sure to include union and non-union sectors. Note that the risk premium for union jobs increases. )

*5. Many states, particularly in the Snowbelt, have experienced the problem of "runaway" firms (firms that close down operations within their borders and move to another state, usually in the Sunbelt). Some states have adopted policies to discourage firms from closing operations and leaving the state. One such policy is to require firms closing down to pay severance pay to their workers. That is, if a firm permanently closes down operations within the state's borders, it is required to pay a lump-sum payment to its former employees. What are the labor market effects of requiring firms in this situation to give severance pay to employees? Use supply and demand graphs to supplement your explanation.