Labour Economics Midterm

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Demogrant
-a lumpsum transfer to specific demographic group
-doesn't depend on income
-pure IE
clawback
gradually reduced as income increases
Negative income tax
-income guarantee, implicit tax rate of less than 100% applied to labor earnings
-Y=G+(1-t)E
wage subsidy
-without work, y=0
-more work, more subsidy received
-not as work adverse as negative tax
-EITC
1.phase-in
2. flat range
3. phase out
employment insurance
-largest income security program
-similar to wage subsidy in terms of graph
disability worker's compensation
-change in indifference curve
-medical expense affect budget constraint
worker's compensation
-to support recipient income so it's not reduced as much as it would be
-decrease return to work effort
childcare subsidy
-incur only if the person works
-independent of hours worked
-budget constraint shift up
-less work incentive
Baker et al :"Universal childcare, maternal labor supply, family wellbeing"
-introduction of highly subsidized and accessible childcare in Quebec in 1990s
-maternal labor supply increased
-children are worse off due to aggression, social skills, illness
-parent health is worse off and low quality relationship
=public system expensive to fund, crowds out private provision
-increasing quality of care
Card&Robin :"Do Financial incentives encourage welfare recipient to work?"
Self-sufficiency project: earnings subsidy in Canada for long term welfare recipient to find full-time jobs
-early result: increase labor market attachment, reduce welfare participation
-people with low-wage opportunity tends to stay on welfare, but will leave with SSP
-significant number of single parents respond to SSP by taking jobs
-the generosity of sap relative to Income Assistance doesn't have strong impact
-recipients are taking jobs that pay lower wages
-many return to welfare when supplement ends after the period
Acemoglu, "women, war, wages: effect of female labor supply on wage structure"
-increase in female participation is driven by both demand and supply - taste, gender role, technology, labor service
-many women were drawn to labor during WWII, and stayed
-higher female participation in 1950 than 1940, some transitory loss of employment post WWII, but quickly rebounded
- + correlation between state with high mobilization and high female participation rate
-increase in FLS decrease both female and male earnings
-female are imperfect substitute to high-school male labor
-ethnic minority/axis-power immigrants are not mobilized
Milligan, "subsidizing the stork"
-fiscal policy Alloance for Newborn chILDREN (ANC) pay for each child birth, highest on the 3rd child
-ANC increase fertility
-family structure
-high income, high fertility to a point - I
-high education has low fertility rate, higher opportunity for female time - Preferences
-Price of related good - C
-Technology
Camerer: "Labour supply of NYC Cab Drivers: One day at a time"
-upward sloping labour supply assumed, unless at high wages or income, where it may be backward bending with " wages come # hours supplied.
-Usually reject this prediction in the real world. Why? Example: NYC cab drivers
-Fixed rate per mile, per minute
-But elective hourly wage changes depending on demand: time of day, day of week, weather, events, subway breakdown, etc.
-Higher elective hourly wage when less time spent looking for passengers.
-Model with time horizon > 1 day would predict wage smoothing: work more on higher wage days, less on lower wage days.
-Theoretical prediction of an upward sloping supply curve intact.
-Cab drivers choose the number of hours, h, on a daily basis and record this on trip sheets: veriÖable.
-Income targets: quit when you reach your income target Narrow decision bracket: decide hours one day at a time
-elasticity of supply is negative (against neo-classical models), income effect dominates due to income targeting
Farber
-Finds Camerer et al (QJE 1997) rejection of the neoclassical model owing to large income elects puzzling.
-Farber revisits setting.
-Problem: hard to estimate labour supply elasticities: hours are typically ëlumpyíand employees have little choice (40hours)
-different methodological approach, Önds results in direct contrast to Camerer et al (1997) and entirely consistent with neoclassical model where substitution e§ect dominates and labour supply curve is upward sloping.
life-cycle labour supply
-U-shaped
-school-work decision; fertility decision; retire or withdraw from LF
-LR intertemporal model where decision of one period will extend to lifetime wellbeing and people's expectation of the future will affect their current choice
evolutionary wage change
-wage increase over the individual's life cycle
-pure substitution effect, income effect spread over time
maximize individual utility and labor-leisure model
MRS=W
economies of scale
average per person cost of meal may be high, but for large family its lower per person
retirement provision
1. automatic - at a specific age
2.consumpsory - offer worker to retire
-positively related to income
-positively related to low-risk and high health
Old Age Security
-demogrant, for those over 65
-work incentive, pure IE, more leisure, retire earlier
Guaranteed Income Supplement
-needs mean test
-50% implicit tax-back for those continued working
-IE: higher purchase, earlier retirement
-SE: return to LF reduced, likely to retire
Social Insurance pension CPP
-public pension paid by employer and employee
-IE: lower return of work, likely to retire
-SE: opportunity cost increase, likely to retire

budget constraint:
Yp=B=(1-p-t)W(T-l)
B: pension
p: explicit payroll tax
t: implicit tax in pension reduction
Card and Krueger: "Minimum wage and employment'
-minimum wage increased in 1990 at different rates
-fast food restaurant in New Jersey compare with Pennsylvania
-concurrent with recession
-Difference in Difference:
>dE=a+bX+cNJ+e
>dE=a+bX+cGAP=e
E: change in employment
X: characteristics
NJ: dummy variables
GAP: 0 for PA stores and in NJ already paying above min
GAP = (5.05-w)/w for other stores in NJ
+min wage, (-) nolabor benefit

-min wage increase had no apparent spill over on higher wage restaurants
-full time equivalent employment actually increased in NJ relative to Pennsylvania
-conclusion was that a rise in the min wage does not lower employment

Why:
-pay less compensation (offer less reduced price meals)
-rise in meal price
-doesn't have negative effect on opening new branches
*-findings are inconsistent with predictions of a conventional competitive model (CCM)
-under a CCM, employment will fall and product price will rise when wages raised*
overall the effect is price being passed onto consumers
SR labor demand
-operate at variable cost
TR-TC
=pQ-(rK+wN)
=pF(K,N) - rK - wN
MR=MC
MR=p=dTR/dQ
MC=w=dTC/dQ

labor demand:
w=MPPxP=VMP

-fixed capital, no substitution effect
-downward sloping cause scale effect, (-) MPN
total revenue product
TRP
total revenue associated with the amount of input
marginal revenue product
MRP=w
change in total revenue with 1% change in input
downward sloping due to diminishing MRN

-in competitive firm
MRP=MRxMPP=pxMPP
w/p=MPP=MRP

-in monopoly, MR<P
MRxMPP=MRP=w
>produce less output
>demand less labor
MPP and MR decrease when N increase
physical productivity of labor
MPP
value of marginal product output per labor
marginal rate of technical substitution
MPPn/MPPk=w/r
in SR: MPN = w
in LR: MPN = price of labor
scale and substitution effect in labor demand
-firm substitute cheaper capital for more expensive labor
-Scale Effect: the reduction in employment that comes about to the extent that the firm reduces its output in response to the wage increase
w+=c+, (-) output and labor
-Substitution effect: capital effect ambiguous
the total cost of labor would not increase because
out input have not increased
LR labor demand
-response larger because changing K
-full substitution between K and N
-Nd is flatter
elasticity of labor demand to wage
dN/dw * (W/N)

-determinants include:
>magnitude of substitution and scale effect
>availability of substitute
>elasticity of supply of substitute
>ratio of labor cost to total cost
elasticity of supply of subtitute inputs (cross-elasticity of demand)
dN/dr * (r/N)

>0, K and N are substitute
<0, K and N are complement, rent on K +, labor demand decrease
elasticity of demand for output
-determines the magnitude of scale effect
Offshoring
-hire both foreign and domestic workers
-linear isoquant = fully substitutable
-corner isoquant = fully complement

LR domestic and foreign demand = Wd/Wf = MPPn,d/MPPn,f = to make them substitutable
quasi-fixed cost
incur per employee and are independent of hours worked

-recurring: payroll tax
-nonrecurring: training and hiring
-mixed variable: increase more rapidly for a given proportion increse in number of employee
effect of quasi-fixed cost
-MC per worker increased, therefore employer prefer them to work more hours
hiring decision
MB>MC for both periods
MC: w, H, T
MB: pMPN = VMP

complicated equation
fixed cost effect
-longer overtime and outsourcing services
-firm expect PV of future MB>PV of future Wt
-labor hoarding: means that even with deduced demand, firm may not lay off
-lay off is higher on unskilled workers, since H&T are buffer for high-skilled workers
-VMP-H-T >W0, keep employed
competitive firm labor demand
-single firm perfect elastic supply
-industry upward sloping
-product price fixed at p1 and p2, MPN=pMPP
Competitive market expectation of labor changes
SR -firm increase w in the short run to attract worker
>D shift out, increase wage
LR - increase supply from increased wage
>wage back to Wc, create a locus of continuous short run supply correction
Imperfect competition under Monopoly
labor demand:
w=MPPxMR=MRP

-effect of increase labor
>(-) MPP
>(-) MR - because monopolist has to decrease price to sell more goods

therefore monopolist demand for labor falls faster than competitive firm
monopolistically competitive
firm is small relative total market, but allow price setting
-demand is not perfectly elastic
-no barrier to entry, LR profit is not above-normal
-pays market wage to workers
>not when unionized, public image, less cost conscious
oligopoly
fewer firms, similar product
actions affect another
some barrier to entry, above-normal profit in the LR
pays higher than Wm
Linear supply and demand
W=(a-c)/(f-b)
N=(af-bc)/(f-b)
b<0
there is constant slope after equation ND=NS

means elasticity vary only with W/N
Unit payroll tax
-considered job killers, CPP, EI
-workers paid W for hour of work; firm pay W+T per worker

Nd(w+T) shifts down from the regular Nd(w)
>wage decrease, worker shoulder some tax, employer shoulder others

Nd=a+b(W+T)=a+bw+bT
Ns=c+fw

at equilibrium of ND=NS
W1=(a-c)/(f-b)-b/(b-f)T < W0

of the T tax dollars, the worker's wage is reduced by b/(b-f)T

SR = elastic s, firm pay some tax but employment is lower
LR = S is inelastic (f=0), worker pay entirety of tax, no change in employment
monopsony
a firm that may not be a competitive buyer in the labor market but is a competitive seller in the product market
-relative large compare to local labor market, influences wage
-if firm is hiring, existing workers must also be paid higher
-maximize by hiring MCnew=MRnew
-MR = VMP
but Wm<VMP
VMP is the marginal benefit of hiring a worker

-if MPP +, monopsony pays a higher wage at all employment and increase N but lower than competitive market
monopsony characteristic
-some inelasticity of labor supply
-workers with specialized skill may not be employable elsewhere
-most firm has monopsony power in the SR
-monopsonist can differentiate work force by paying different wage and thus save from giving everyone equal pay
minimum wage
-adverse employment effect
layoff + new entrant
-unemployment is ambiguous
>some drop out
>only one sector, may move between sectors
>normally apply to sector with elastic demand because they are easily replacable
monopsony with minimum wage
-minimum wage at W1, MC=VMP
result is increase N1 because we hire at MC not VMP
-firm nolonger have to pay equal wage to all worker, MC of expansion if lower, but not as many as competitive market
Gaston&Trefler "The Labour Market consequences of the Canada-US free trade agreement"
-increase r = + price of borrowing
>decrease economic activity
>decrease inflation
>increase canadian dollar return
>increase foreign investment to canada
>increase expectations
>wage increase demand

-FTA account for no more than 15% of Canadian job loss
-fight against inflation caused more
>effective inflation control in 91/92
-recession caused more
-sticky earning, wage didn't change much
-unionized high tariff sector are winners, those who are sensitive to exchange and export are losers
-import has negative effect on earning
-increase in tariff increase canadian employment

-equation: dLn L= a0+a1dX+a2dZ+a3dT+v
d: first difference
X: vector of time - common to all industries
W: earnings
Z: vector of time - industry regressor
T: vector containing variable of interest such as trade flow
Buchmuller, "fringe benefits and demand for part-time workers"
-benefit that supplement the salary
-firm offer more fringe benefit to fulltime employee; use more part time workers when filling low wage jobs
-no connection between fringe benefit and proportion of high wage workers employed part time
-fringe benefits can be quasi-fixed costs
-employer respond to increase in healthcare by replacing full-time employee with part-time worker who don't receive benefits
-some worker rather receive all pay than some pay and some fringe benefit

-PPT=a+b1(Bf-Bp)+u
Bf; Bp - full and part time worker, independent variable
-overall relative demand for worker is determined by production technology, market wage, and provision of fringe benefits
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