Income Elasticity and Economic Development - Assignment Example

Labor Economics Name Institution 1. a). From an analysis of the information in the below line chart identify and describe the changes that transpired in either the male participation rate or the female participation rate between July, 1978 and July 2013. Using economic theory and empirical analysis provide three plausible reasons why the changes in the participation rate you have chosen occurred over the 35 year period. The global economic growth pace is driven by an active population that is involved in the production, creation, and distribution of goods and services. Throughout agricultural to the industrial revolution, women’s participation in active labor has come with many differences in terms of socio-economic development. Analysis of women labor force participation by their education, marital status, age as well as urban residence has also determined the effect of their participation to the general development of the global economy. In this case therefore, the imperative understanding of the labor trend among male and female laborers is the basis of the analysis shown in graph 1 below. Based on the labor economics, the primary concern is the interaction of labor functioning and dynamism of the markets for wage labor. According to the neo-classical, labor market is viewed just like other markets where the forces of demand for and supply of labor interacts. The ideal situation of the labor market is actually controlled by the wage pattern as stipulated by labor laws. The outcomes of the labor market are however affected by gender, race, as well as ethnicity. Conversely, the paramount differences in terms of earnings and time of working between male and female of those in full time and this is explained by gender-related differences in terms of educational attainment, prior work experiences, average working hours and occupational choice. As shown in the graph below, there is a general uniform trend in terms of female and male labor between 1978 and 2013. The participation rate of women is on the increasing trend from 1978 to 2013, marked by a percentage increase from about 45% in 1978 to about 59% in 2013. The participation rate of male on the other hand is on the declining trend from 1978 to 2013, marked by reduction from about 79% participation rate in 1978 to about 71% in 2013. Notably, women are increasingly taking a central in the labor market in the future, considering the trend while men, out of the competition from women, who are highly into education systems and gaining experience day in day out compared to their male counterparts. The red line represent male participation trend Red represents the female participation trend 40.0 80 70 60 50 30 20 10 July 1978 full-time workers, on average, worked 166.4 hours per month and part-time workers, on average, worked 65.1 hours per month. In July 2013 full-time workers, on average, worked 171.1 hours per month (an increase of 4.7 hours per month) and part-time workers, on average, worked 71.0 hours per month (an increase of 5.9 hours per month). HOWEVER, the average hours worked per month for all workers was 150.8 in July 1978 and 141.0 in July 2013. How can average hours per worker fall over this time period given the increase in hours worked by both full-time and part-time workers? Using economic theory and empirical analysis discuss three factors that could have contributed to the changes in average total hours worked per person during that time. According to Duangkamon (2008). , productivity is a measure of inputs and outputs based on the efficiency level I production. The production efficiency is also subjected to the form’s capability to create incomes that are determined by value of both the output and input. Worker productivity can also be measured in terms of their efficiency level and the number of hours worked. There are factors that have contributed to the changes in average total hours worked per person during the time period between the month for all workers of 150.8 in July 1978 and 141.0 in July 2013. Basically, the total average working hours per person depends on the general trend of employment in the economy. According to Duangkamon (2008), these factors include, 1. The trend of total employment in the national economy whereby the priority of the impact is given to the number of persons who are in full time jobs. Different impacts of economic difficulties on individual sectors of the economy, generally quantifiable by the trend of average hours worked in the reference week, are another factor. In comparison to the other European economies, the impact of other factors such as the number of second jobs and the corresponding hours worked is smaller. 2. Another factor affecting hours worked is the proportion between persons in full-time main job and part-time main job. As stated by Haque (2005), employment is affected by the present economic situation not only through changes in total employment and increasing number of part-time main jobs. A more complex impact on the amount of hours worked can be demonstrated by the trend of the average monthly working hours in main job. The consideration of the trend can be based either on the indicator of hours usually worked, which is affected by legislative conditions in effect for individual types of occupations and sectors, or on the indicator of average hours actually worked in the reference period. 3. The total average working hours also depend on the structure of persons employed by number of hours actually worked. The rationality of determining the number of persons for which hours actually worked per month are calculated may also be used for the consideration of annual changes. c) Discuss any linkages between educational attainment and work status within the Australian population that you can identify from the data contained in the Table 2 (Education and Work, Australia, May 2013) in the attached Excel spreadsheet. Explain with reference to human capital theory why these relationships may have arisen and what incentives individuals have to attain higher levels of education and training. In your answer provide appropriate diagrams to support your explanation of the linkages and trends between educational attainment and work status Human capital theory suggest investments that are made on human resources in order to improve their productivity thereby make them increase their scale of earning, and meanwhile costs with future benefits are incurred in the process. Becker (1992) developed the human capital theory, and argued that all practices aimed at increasing the value of human capital involve improving the education standards, such as attainment of university degrees, experience among others. The consumption benefits that accrue to human capital extend to its connection between employment and education. As one of the key determinants of economic performances, human capital theory make the aspects of technological change, research, innovation, productivity, education, as well as competitiveness very relevant as the factors of growth and development. There is a perfectly and direct relationship between employment and education and as shown in the tables shown below, educational attainment and work status within the Australian population have a direct relationship in the sense that attainment of higher level of education lead to acquiring better employment opportunity. Based on table 1 (year 12), the number of people in the labor force has those with highest non-school qualification being high on 5,438.2 and those without a non-school being 2,123.8. In the same way, the number of people employed, both full time and part time are high with the bachelor degree than in any other level of education. This shows a perfect relationship that education has with employment in Australia. Table 1: Level of highest non-school qualification Employed full time Employed part time Total employed Unemployed In labor force Not in labor force Total ESTIMATES ('000) YEAR 12 Postgraduate Degree 523.1 117.3 640.4 22.8 663.2 82.4 745.6 Graduate Diploma/Graduate Certificate 224.8 100.1 324.9 9.3 334.2 49.4 383.6 Bachelor Degree 1,586.3 539.2 2,125.5 72.8 2,198.4 325.2 2,523.6 Advanced Diploma/Diploma 627.8 260.4 888.1 38.4 926.5 179.7 1,106.2 Certificate III/IV 780.7 236.7 1,017.4 49.6 1,067.0 154.3 1,221.3 Certificate I/II 73.4 51.5 124.8 20.6 145.4 55.0 200.4 Certificate n.f.d. 38.8 8.0 46.8 5.5 52.3 6.8 59.1 Total with a non-school qualification 3,891.8 1,322.9 5,214.7 223.5 5,438.2 864.0 6,302.2 Total without a non-school qualification 1,237.4 742.1 1,979.5 144.3 2,123.8 720.8 2,844.6 Total 5,129.2 2,065.1 7,194.2 367.8 7,562.0 1,584.8 9,146.8 Source: Commonwealth of Australia 2013 Graph 2: Level of highest non-school qualification Employed full time Employed part time Total employed Unemployed In labor force Not in labor force Postgraduate Degree 3.0 6.8 2.9 14.3 2.9 9.0 Graduate Diploma/Graduate Certificate 4.3 6.9 3.2 24.9 3.2 9.7 Bachelor Degree 1.7 2.6 1.5 7.6 1.5 4.3 Advanced Diploma/Diploma 2.5 3.8 2.3 11.0 2.3 4.2 Certificate III/IV 1.8 3.0 1.5 5.6 1.5 3.6 Certificate I/II 5.9 4.5 3.7 9.3 3.5 5.1 Certificate n.f.d. 9.5 16.0 8.3 25.6 7.8 16.7 Total with a non-school qualification 0.8 1.8 0.8 3.9 0.8 2.1 Total without a non-school qualification 1.5 1.8 1.2 3.7 1.3 1.5 Source: Commonwealth of Australia 2013 d) Tables 3 and 4 (when combined) in the Excel spreadsheet attached show the breakdown of persons employed by industry classification from the years 1994 to 2012. Identify and describe the changes in total employment numbers in the following three industry sectors: 1. Agriculture, forestry and fishing; 2. Manufacturing; 3. Health and community services The causes of employment increase or decline over time differ across industry sectors. Provide one distinct and credible reason based on economic theory and empirical analysis why these changes may have occurred for each of the three industries being analyzed. In your answer provide appropriate diagrams showing the changes in the three industry sectors. Some of the important industries that determines the economic growth and development of an economy are primarily the three; the manufacturing industry, health & community services, as well as agriculture, forestry, and fishing. A country’s development, in terms of the human resources is based argued from their participation rates from these industries. Based on the spreadsheet given, it is pretty clear that these three industries had huge impacts on the employment changes, especially towards the close of the decade. 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Full-time '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 Male Employees with paid leave entitlements Agriculture, forestry and fishing 56.0 54.8 54.8 56.7 48.0 53.1 56.0 63.1 50.5 58.1 50.7 57.1 56.3 44.4 Manufacturing 668.3 673.5 661.6 663.0 647.8 623.4 648.7 638.4 641.8 598.8 597.6 580.5 597.3 594.8 Health and community services 98.6 112.5 119.0 112.7 116.1 110.1 110.2 115.5 122.0 127.2 122.8 126.9 125.6 120.7 Full-time Employees without paid leave entitlements Agriculture, forestry and fishing 26.4 24.8 35.8 28.5 37.0 32.7 39.1 38.6 32.3 33.4 33.0 30.2 34.6 27.9 Manufacturing 40.9 53.8 52.9 58.4 70.3 54.4 49.6 44.9 63.7 65.4 68.5 57.6 51.9 65.6 Health and community services 4.6 7.0 9.4 7.1 7.5 8.1 11.4 7.8 12.1 7.4 9.1 11.8 11.3 17.5 From the context of male employment participation rate, there has been a declining trend in the rate of the full time employees with leave entitlement in agriculture, forestry, and fishing and the manufacturing industry. Agriculture, forestry, and fishing registered high on this rate only in 2001 more than any other year and resumed the declining trend afterwards. However, there has been an increasing trend of participation rate of the employees with leave entitlement in the health and community services industries. Basing argument from the extract above, the changes in total employment numbers in the three industry sectors is a typical of what Haque (2005) asserted that both the society and culture shape the preferences of individuals in various ways. Social factors also influence economic contractual transactions. Even the contract rests on cultural understandings and the legal framework which is historically determined. The declining trend can also be explained from the structural changes perspective, where technology advancements take effects of reducing total reliance on human capital. However, there is high need for health and community services as population increase have real impacts on the economy. In that case therefore, the increasing level of full-time employees explain these health needs while the other two industrial sectors have a declining pattern as a result of global advancements in structural and technical growth of the economy. 2. Both Fizzy Drink Pty Ltd and Black Mines Ltd employ unskilled workers. Both companies are profit-maximizing firms. In general, the market for the labor services of unskilled workers is considered to be perfectly competitive. Fizzy Drink Pty Ltd is the sole Australian manufacturer of a sugar-free food additive component called ‘Sweet Fix’ which is used to sweeten various processed foodstuffs and its unskilled workers are employed directly in the manufacture of ‘Sweet Fix’. There are no close substitutes to this food additive manufactured in Australia and, due to quarantine restrictions, no equivalent product made overseas can be imported into the country. The company has its factory in suburban Sydney. Black Mines Ltd operates a Copper mine in an isolated and inaccessible region of outback Australia. Because of its remoteness (no-one other than employees of Black Mines Ltd lives or works within a 500 kilometer radius the company has built a sizeable town next to the mine which includes living quarters and social amenities for its workforce. The company’s unskilled workers are employed in tasks such as cleaning, garbage collection and road maintenance. a) With the assistance of appropriate diagrams, detail the outcomes for the wage rate and the employment quantity of Fizzy Drink Pty Ltd’s unskilled workers and the resulting impact on allocative efficiency compared to those that would occur if there were numerous local producers of food additives with similar qualities to ‘Sweet Fix. The economic argument against minimum wages assumes a competitive labor market where each profit-maximizing firm is assumed to be able to hire all the labor it wishes at the competitive market wage rate as shown in the figure below at the market-clearing wage rate is Wo with Lo workers employed. Allocative efficiency basically occurs when the workers are paid the market wage that reflects the private marginal cost of production. The marginal wage equals the wage rate in the market. Free adjustments f the wage market forces of demand for labor and supply for labor are left to freely control the market, then various adjustments takes place as shown in the diagram below. b) With the assistance of appropriate diagrams, detail the outcomes for the wage rate and the employment quantity of Black Mines Ltd’s unskilled workers and the resulting impact on allocative efficiency compared to those that would occur if there were a considerable number of alternative employers of unskilled workers in proximity to the company’s mine. At the normal labor demand and supply, the equilibrium quantity demanded equals the labor supplied in the labor market. Being a competitive market, the firm maximizes profit at the quantity given by the equilibrium point as shown in the diagram above. In order for Black Mines to produce efficiently with the unskilled workers, the Marginal Social Benefit=Marginal Social Cost as shown in the graph below. Accordingly, of there are no negative externalities for instance any spillovers or external costs, then the S = MSC. In the same way in the event there are no positive externalities e.g. spillover or external benefits, then the D = MSB. In this case, the outcomes for the wage rate and the employment quantity of Black Mines Ltd’s unskilled workers will be built on getting what they want and also proximity to the company’s mine will be supported by self-interested, profit maximizing, businesses that end up doing what is best for society - achieving allocative efficiency - as if there is some "invisible hand " guiding their decisions. b. Assume that the Federal Government introduces legislation that imposes a minimum wage for unskilled workers. The minimum wage rate is set marginally below the current market clearing wage in the perfectly competitive market for unskilled workers. Using appropriate diagrams where necessary, outline the wage, employment and allocative efficiency consequences this will have in the cases of Fizzy Drink Pty Ltd and Black Mines Ltd’s unskilled workers. Suppose that the government imposes a minimum wage of Wmin > Wo At the wage Wmin, profit-maximizing firms will only employ Lmin workers and (Lo – Lmin) workers will lose their jobs. The number of workers who lose their jobs following the imposition of a minimum wage depends on the elasticity of the labor demand curve for minimum wage workers and the size of the (Wmin – Wo) differential (factors affecting the elasticity of the demand for labor curve. The government with its roles in the economy has varied effects, either positive or negative. In this case, the government injunction of dictating the minimum wage rate have the effect of lowering the quantity demanded of labor a fact that has catastrophic effects on the allocative efficiency in production in the long run. The intervention by the government also affects the elasticity of labor demand in the market. Basically as shown in the diagram above, the firm get less than the efficient quantity so there is an UNDERALLOCATION of resources because at a price of Pc the MSB > MSC. An underallocation of resources means that society is using too few resources on this product or that society would be happier if they produced more of this product an less of something else. Consider also the diagram below. 3. The labor force on the small island of Paradisia consists of ten people. Their annual employment earnings are: a) Using this information calculate the percentage of total annual earnings received by each earnings quintile on Paradisia. Show the quintile earnings in a table and also construct a Lorenz curve for the Paradisian labor force. Briefly explain how a Lorenz curve illustrates the extent of earnings inequality that exists within a group of workers. From the table of labor force of Paradisia, the annual earning of the ten employees give the following total earnings in terms of their total earning quartile ranges on Paradisia. Point Column1 Rank Percent 10 190,000 1 100.00% 9 170,000 2 88.80% 8 150,000 3 77.70% 7 130,000 4 66.60% 6 110,000 5 55.50% 5 90,000 6 44.40% 4 70,000 7 33.30% 3 50,000 8 22.20% 2 30,000 9 11.10% 1 10,000 10 0.00% The Gini coefficient is the area between the line of perfect equality and the observed Lorenzo curves, and as a percentage of the area between the line of perfect equality and line of inequality. Notably, from the table above of the annual earnings, the following Calculate the Gini coefficient for Paradisia using the data on the workers’ earnings and the following formula: Where N is the number in the population, u is the mean income of the population, Pi is the income rank P of person i, with income X, such that the richest person receives a rank of 1 and the poorest a rank of N. U=100,000 N=10 (10+1/10-1)- (2/[9]100,000 1.22-0.000001 1.2199(11.1%) 0.1354 References Duangkamon, C. (2008). Modeling income distributions and Lorenz curves. New York: Springer. Flakierski, H. (1986). Economic reform & income distribution: A case study of Hungary and Poland. Armonk, N.Y: M.E. Sharpe. Haque, M. O. (2005). Income elasticity and economic development: Methods and applications. Dordrecht: Springer. Winch, D. M. (1989). Collective bargaining and the public interest: A welfare economics assessment. Kingston: McGill-Queen's University Press. rticiion rate ; Ma Read More