PROBLEMS’ AND APPLICATIONS

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PROBLEMS’ AND APPLICATIONS

1. College students sometimes work as summer interns for private firms or the government. Many of these positions pay little or nothing.

a. What is the opportunity cost of taking such a job?

b. Explain why students are willing to take these jobs.

2. Suppose there are two labor markets: one in which workers are covered by a binding minimum wage and one in which workers are not covered by a minimum wage.

a.Draw a diagram for each of these markets. Are both markets in equilibrium? Explain.

b.’ Suppose that the government raises the minimum wage in the covered market. What will occur in , this market? Who will be ‘happy about this policy? Will anyone be unhappy with this policy? Explain

c. Will the increased minimum wage in the covered market affect the workers who are not covered by the minimum wage? Explain. using your diagram.

3. A basic fading of labor economics is that workers who have more experience in the labor force are paid more than workers who have less experience (holding constant the amount of formal education). Why might this be so? Some studies have also found that experience at the same job (called job tenure) has an extra positive influence on wages. Explain.

4. At some colleges and universities, economics professors receive higher salaries than professors in some other fields.
a. Why might this be true?

b. Some other college and universities have a policy of paying equal salaries to professors in all fields. At some of these schools, economics professors have lighter teaching loads than professors in some other fields. What role do the differences in teaching loads play?

5.Imagine that someone were to offer you a choice: You could spend 4 years studying at the world’s best university, but you would have to keep your attendance there a secret. Or you could be awarded an official degree from the world’s best university; but you couldn’t actually attend. Which choice do you think would enhance your future earnings more? What does your answer say about the debate over signaling versus human capital in the role of education?

6. When recording devices were first invented almost 100 years ago, musicians could suddenly supply their music to large audiences at low coastal ow do you suppose this development affected the income of the best music is? How do you suppose it affected the income of average musicians?

7. When Alan Greenspan (who would later become chairman of the Federal Reserve) ran an economic consulting firm in the 1960s, he primarily hired female economists. He once told The New York Times, I always valued men and women equally, and I found that because others did  not, good women economists were cheaper than men.Is Greenspan’s behavior profit-maximizing?  Is it admirable or despicable? If more employers were like Greenspan, what would happen to the wage differential between men and women? Why might other economic consulting firms at the time not have follower span’s business strategy?

8. Suppose tha all young women were channeled into careers as secretaries, nurses, and teachers; at the same time, young men were encouraged to consider these three careers and many others as well.

a. Draw a diagram showing the combined labor market for secretaries, nurses, ::…ud teachers. Draw a diagram showing the combined labor market for all other fields. In which market is the wagehigher? Do men or women receive higher wages on average?

b. Now suppose that society changed and encouraged both young women and young men to consider a wide range of careers. Over time, what effect would this change have on the wages in the two markets you illustrated in part (a)? What effect would the change have on the average wages ofmen and women?

9. Economist June O’Neill argues that ”until family roles are more equal, women are not likely to have the same pattern of market, work and earnings as men.” What does she mean by the pattern of market work? How do these characteristics of jobs and careers affect earnings?

10. This chapter considers the economics of discrimination by employers, customers, and governments. Now consider discrimination by workers. Suppose that some brunette workers did not like working with blonde workers. Do you think this worker discrimination could explain lower wages for blonde workers? If such a wage differential existed, what would a profit-maximizing entrepreneur do? If there were many such entrepreneurs, what would happen. over time?

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PROBLEMS’ AND APPLICATIONS