# Project #91597 - Labor Economics Problem set 3

Labor Economics

EC 356  Problem Set 2

Nov 12, 2015

1.      Briefly explain or define                                       [3 points each]

Defined benefit pension plan

Defined contribution pension plan

Vesting (pension plan)

Hedonic wage regression

Sheepskin effect

2.      There are clean coal mines that pay workers \$42,000 and dirty coal mines that pay \$47,000.

a.  Suppose OSHA requires the owners of dirty mines to improve conditions so that their mines are now clean.  What will happen to the wages of miners in the formerly dirty mines?

b.  What will happen to the profits of these mine owners?                      [15 points]

c.  Give arguments for and against tighter government regulation of mines.

d.  Now suppose OSHA doesn’t tighten its regulations but the American Cancer Society starts an advertizing campaign on the bad long term health effects of working in dirty mines.  What will happen to the wages of miners in the dirty mines?

e.  What will happen to the number of jobs in dirty mines as a result of what happens in (d)?

3.      You have estimated a wage regression for fulltime US workers              [15 points]

Ln W = 1.20 + 0.08 Ed + .064 Exp - .0008 Exp2 - .15 F   where

(0.50)   (0.02)      (0.02)        (0.0004)        (0.05)

Ln W is the natural log of the hourly wage, Ed is years of education, Exp is experience defined as Age – Ed – 6, and Exp2 is Experience squared.  F = 1 for women, 0 for men.

Standard errors are in parentheses.

a.                   What is the hourly wage of a 40 year old college graduate (Ed=16) woman?  Man?

b.                  What is W for a 40 year old woman high school graduate (Ed=12)?

c.                   At what age does the wage peak for college graduate women?  For high school grads?

d.      Which coefficients are statistically significant?  Show the calculation necessary to answer this question.

4.      Draw, label, and explain a diagram that shows the effect of a minimum wage on the wage rate, employment, and unemployment in low skilled labor markets if these markets were perfectly competitive before the minimum wage existed.  Now draw and explain a 2nd diagram to show the effect of a minimum wage on the wage rate, employment, and unemployment if the market is monopsonistic because searching for a new job is costly in time and money.                                                                                               [15 points]

5.      The government has a training program for high school dropouts.  Applicants to the program are chosen randomly.  Then the government collects data on wages before the program and after for both participants who receive training and applicants who were not accepted into the program.

Earnings before                       Earnings after

Participants                             \$6700                                      \$12,700

Other applicants                      \$6750                                      \$11,400

1. What is the effect of the program on participants’ earnings?  Explain how you calculated this effect.
2. If the program costs the government \$15,000 per participant, what is the annual return on this investment?  Show your calculation.
3. If the government’s discount rate is 5%, should it continue this program?
4. If its discount rate is 10%, should it continue the program?                          [10 points]

Suppose the supply curve of physicists is given by w = 10 + 5E, while the demand curve is given by w = 50 – 3E.  Calculate the equilibrium wage and employment level. Suppose now that the demand for physicists increases to w = 70 – 3E. Assume the market is subject to cobwebs. Calculate the wage and employment level in each round as the wage and employment levels adjust to the demand shock. (Recall that each round occurs on the demand curve – when the firm posts a wage and hires workers). What is the new equilibrium wage and employment level?

 Subject Science Due By (Pacific Time) 11/10/2015 12:00 pm
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