Economics, Finance and General Business - Assignment Example

Without immigration, the market-clearing wage is $12, at which all 120 million low-skill U.S. workers are employed. With immigration, the market-clearing wage is $10, at which all 120 million low-skill U.S. workers and all 20 million immigrants are employed. The additional surplus received by the U.S. because of immigration equals ($12 – $10) (140m – 120m) / 2 = $20 million.

Initially, the monopsonist hires EM workers at a wage of wM. The imposition of a payroll tax shifts the demand curve to VMP and lowers employment to E and the wage to W. Thus, the effect of imposing a payroll tax on a monopsonist is qualitatively the same as imposing a payroll tax in a competitive labor market: lower wages and employment. (It is interesting to note that the same result comes about if the payroll tax is placed on workers so that the labor supply and marginal cost of labor curves shift as opposed to labor demand.

The glamorization of job-related risks may make people more willing to take these risks. This increases the supply (shift out) of workers to risky jobs and reduces the compensating differential
Thus, information on whether employment in the risky sector increased or decreased can help discern between the two competing explanations: if employment in risky jobs went down then it is likely due to technology; if employment in risky jobs went up it is likely due to preferences.

5a. The supply curve to the risky job is given by the fact that worker 1 has a reservation price of $1, worker 2 has a reservation price of $2, and so on. As the figure below illustrates, this supply curve (given by S) is upward-sloping and has a slope of 1. The demand curve (D) for risky jobs is perfectly inelastic at 10 jobs. Market equilibrium is attained where supply equals demand so that 10 workers are employed in risky jobs; the market compensating wage differential is $10 (or, at least some number at least $10 at not yet $11) since this is what it takes to entice the marginal (tenth) worker to accept a job offer from a risky firm. Note that the firm employs those workers who least mind being exposed to risk.

b. If tastes toward risk change, the supply curve shifts down to S and the market equilibrium is attained when the compensating wage differential is -$1. This is the compensating differential required to hire the marginal worker (that is, the 10th worker). Read More