Labor Economics .

This article discusses the impact of price change on wage rate, overtime pay, minimum wage, and returns to education. It also covers the betas for schooling and wage increase for men and women.

Running head: LABOR ECONOMICS
Labor economics
Name of the student
Name of the university
Author Note

LABOR ECONOMICS
1
a)
When there is change in price, the rise in the rate of wage will have both the
substitution and the income effect. The net combined effect mostly depends on the magnitude
of both substitution and the income effect. In case of substitution effect the equilibrium point
moves from E0 to E2 where the individual will be increasing the hours of leisure when the
wage decreases. As the slope of the indifference curve is found to be downward sloping, the
substitution effect is found to be negative in nature. The move from E1 to E2 shows the pure
effect. On the other hand the income effect states the effect of change in the real income
where the relative price of leisure will be constant in nature. When the leisure is the normal
good, income effect will always be positive which states parallel shift from E2 to E1.
Therefore as wage increases, the leisure also increases from l2 to l1
B)

LABOR ECONOMICS
When the individual is working for long hours or doing overtime they should be
offered higher wage than the normal rate as the workers are working overtime. In order to
work overtime, the worker will have to sacrifice more amount of leisure time and therefore
will be providing more incentives to forgo more leisure. His indifference curve also moves
higher to the point of IC2. He also had to sacrifice l1l2 more leisure’s in order to work
overtime and also earns M1M2 more income than before. He also now works TL2 hours per
day at the hourly wage rate.
c)
By implementing a program which will be increasing the non-labor income, it would
increase the non-labor income which suggest that the budget constraint will be moving
leftward or more towards the origin.
Question 2
a)

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The minimum wage is a kind of remuneration which is usually the lowest and is payed to the
employees legally by the employers. When the government imposes a minimum wage the
firms will not be paying less than that amount. When the government imposes minimum
wage, the amount of labour hired in the market decreases. Employment will decrease
resulting in huge unemployment. Some of them will no longer have any kind of jobs. When
the government will be imposing minimum wage, people who are wanting to work will not
be able to find jobs. Therefore, when the rate of minimum wage rises, there is an increase in
unemployment which is shown in the diagram above. There may be also present of
underemployment and unemployment.

time
Control variable
LABOR ECONOMICS
b)
According to the table shown in the question, it shows that the minimum wage have a
significant impact on the wages but not on employment. In case of wage it shows that the
minimum wage is significant only case of restaurant, limited service restaurant and the food
service and drinking places. This suggests that there will rise in wages in the mentioned
places as the increase in minimum wage have a significant and positive impact on the wages.
The values in case of employment is not significant as it does not show any level of
significance.
c)
Answer 3
employment

LABOR ECONOMICS
A)
The relationship between the education and the earning is known as the returns to education.
The difference presence between the price of highly and the poorly educated labour states the
return to education. One of the important goal for the return to education is to calculate
impact of education on earnings. The average wage of the university graduates will not help
the people for estimating the impact of the post-secondary education since the average wage
does not show the extreme range of salaries. Also the students who pursue their graduation
degree might not continue working after that. As the highest and the lowest value is not
given, the estimation is not possible.
b)
The betas for schooling provides shows that the wage for men is much higher compared to
the wage for the women. It also shows that with 1 unit rise in the beta 0.036 part of the wage
of the men rises although only 0.022 part of the women’s wage rises. It also states that that
only 0.058 part of the wage is explained and the rest of the part of decomposition of wage
stays unexplained.
c)
The wage increase is a higher in case of men when compared to the women. However, the
directing position states that wage of the of the men is much higher than the increase in the
wage of women. The wage of the director is known to be similar despite any gender
discriminations.

LABOR ECONOMICS
Reference list
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Nelson
Education.
Friedman, L. S. (2017). The microeconomics of public policy analysis. Princeton University
Press.
Microeconomics, E.E., 2015. KELVIN WONG. Cell, 808, pp.386-8406.
Varian, H.R., 2014. Intermediate Microeconomics: A Modern Approach: Ninth International
Student Edition. WW Norton & Company.