The aggregate demand for labor curve is , where w is the wage an…

The aggregate demand for labor curve is , where w is the wage and a > 0 and b , where c > 0, d > 0, and a > c. Labor supply and demand are measured in hours.
a. Graph the labor market equilibrium, and solve for the equilibrium wage and number of hours, as functions of a, b, c, and d.
b. Congress is considering raising taxes to finance public health insurance. Under the Republican plan, workers would be taxed an amount t per hour worked. Democrats object to taxing workers, and instead propose taxing employers an amount t for each hour worked by an employee. Using graphs, show the effects of these alternative tax plans on wages and on employment.
c. Solve for the equilibrium wage and number of hours under each plan.
d. Which plan is better for workers? Show this explicitly.
e. If a = 10, b = -1, c = 0, and d = 1, calculate the deadweight loss from a payroll tax of 0.2.
2. A few years ago, the city of Santa Monica was considering enacting a living wage for hotel workers. Opponents argued that mandating a wage above the equilibrium wage level would increase hotel prices, lower demand for hotel rooms, and hence reduce employment of hotel workers. Proponents, however, introduced evidence that during the 1990’s, prices for hotel rooms increased and wages of hotel workers increased, yet over the same period the quantity of hotel rooms “sold” increased and hotel worker employment increased. They argued, based on this evidence, that the living wage law, even if did increase hotel prices, would not reduce hotel employment and would in fact be more likely to increase it. Evaluate the argument of the living wage proponents.
3. For this problem, you will study developments in unemployment during the current recession, using data from the U.S. Bureau of Labor Statistics (or elsewhere), at In all cases display the data in a graph (or graphs), and provide some text describing what you find.
a. Figure 12.5 in Borjas compares the official unemployment rate with two alternative measures that include different measures of “hidden unemployment.” Use data from the U.S. Bureau of Labor Statistics (or elsewhere) to describe what has happened to these three different measures of unemployment during the current recession.
b. How has the unemployment rate changed for men and for women during the current recession? If you find evidence of differences, try to explain why (and don’t just speculate; use the BLS data to try to introduce evidence for your argument).
Note: The answers to this question should be typed up, not hand-written.
4. A labor economist estimates a regression of log earnings on schooling (S), experience (E), ability (A, as measured by IQ), and interactions between schooling and experience, and ability and experience, and obtains the following estimates (assume all estimates are statistically significant):
ln(Y) = 9.90 + .07·S + .03·E + .04·A -.005·S·E + .008·A·E
Is this evidence more consistent with the human capital model, or the signaling model? Explain your answer.
5. A high school graduate is considering whether to attend college. He predicts that his earnings if she doesn’t attend college will be $25,000 per year (real). He predicts that his earnings after four years of college will be $37,000. Tuition costs are $5,000 per year. Assume that college begins at age 18, and ends at age 22, and that he will work until age 65. (You will find it useful to use a spreadsheet program to solve this problem.)

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