ANALYSIS OF LABOR MARKETS

1. The equilibrium of a competitive labor market is associated with

(a) no unemployment as everyone has a job.
(b) no unemployment as everyone who wants a job at the equilibrium wage has one.
(c) no unemployment as labor is assumed to be supplied inelastically.
(d) some unemployment as some people do not have a job at the equilibrium wage.
(e) some unemployment as firms are not required to pay the minimum wage.

2. Which of the following would result in a short-run increase in the wage rate in a competitive labor market?

(a) An increase in immigration.
(b) An increase in the output price.
(c) A decrease in productivity.
(d) An increase in native labor supply.
(e) A decrease in labor demand.

3. Labor force participation rates tend to

(a) increase with education level for both men and women.
(b) decrease with education level for both men and women.
(c) decrease with education level for men but increase with education level for women.
(d) be unrelated to education level for both men and women.
(e) be unrelated to education level for men but increase with education level for women.

4. When the government imposes a payroll tax on workers,

(a) the effects are identical to the effects had the government imposed the tax on employers.
(b) the costs of hiring remain constant.
(c) the labor supply curve shifts to the right.
(d) total employment remains constant.
(e) workers' real wages are unchanged.

5. Paula is considering going to law school. If she does, she will spend $60,000 on tuition and books to get a college education (during the first time period), $120,000 on tuition and books to get a law degree (during the second time period), and her law degree will earn her $620,000 during the remainder of her work-life (during the third time period). Paula's time preference for money is associated with a per-period interest rate of 20 percent. Approximately what is Paula's present value of obtaining a law degree?

(a) $100,100
(b) $210,400
(c) $270,500
(d) $440,000
(e) $621,900

6. Suppose the supply curve of physicists is given by w = 10 + 5E, while the demand curve is given by w = 50 - 3E.

(a) Calculate the equilibrium wage and employment level.

(b) Suppose now that the demand for physicists increases to w = 70 - 3E. What is the new equilibrium wage and employment level in the short run?

(c) What happens in the long run? What will happen to the demand curve? to the supply curve? What happens to the equilibrium wage and employment in the long run?

(d) Show changes in the equilibrium wage and employment in the short run and long run in a graph.

7. An economy consists of two regions, the North and the South. The short-run elasticity of labor demand in each region is -0.5. Labor supply is perfectly inelastic within both regions. The labor market is initially in an economywide equilibrium, with 600,000 people employed in the North and 400,000 people in the South at wage of $15 per hour. Suddenly, 20,000 people immigrate from abroad and initially settle in the South. They possessed the same skills as the native residents and also supply their labor inelastically.

(a) What will be the effect of this immigration on wages in each of the regions in the short run (before any migration between the North and the South occurs)?

(b) Suppose 1,000 native-born persons per year migrate from the South to the North in response to every dollar differential in the hourly wage between the two regions. What will be the ratio of wages in the two regions after the first-year native labor responds to the entry of the immigrants?

(c) What will be the effect of this immigration on wages and employment in each of region in the long-run (after native workers respond by moving across regions to take advantage of whatever wage differentials may exist)? What are the equilibrium levels of employment and wage in both regions? Assume labor demand does not change in either region.