ECONOMICS 152-SPRING 2021 Homework Assignment #3 Due: Friday, May 15, 2022 by 11:55pm on Canvas You may work with others in the class on these problems, but you must turn in your own, original work. PART I.A. WELFARE AND THE LABOR-LEISURE MODEL (30 points) Morgan, a single dad, has 40 hours per week to devote to work (h) or leisure (L). If he works for pay, he earns $25 per hour but he has to pay $15 per hour in childcare. He receives $300 per week in child support from his ex and qualifies for welfare benefits of $200 per week unless his total income (including welfare benefits) reaches $800 per week (call this the benefit cutoff), at which point his welfare benefits fall by $1 for every additional dollar he earns. With his income, he purchases market goods (M) at a price of $1 for every M. 1. Plot Morgan's budget constraint with and without childcare costs. Make sure to label the important points on his budget constraint including the slopes and all kinks. (5 points) 2. Suppose his preferences dictate (this is the point on the budget constraint that intersects the highest possible indifference curve) that he chooses to work 12 hours. How much will he consume in M per week? How much would he consume in leisure? (5 points) 3. What does the labor-leisure model say about how Morgan's consumption, leisure and labor supply would change if (a) his ex-wife changes jobs and child support payments fell to $100 per week? (5 points) (b) welfare benefits increased to $300 per week and the benefit cutoff to $825? (5 points) 4. What does the labor-leisure model say about how Morgan's consumption, leisure and labor supply would change if (a) his parents decide to help out by providing free childcare? (5 points) (b) his "leisure"-time studying means he gets a promotion at work and his hourly wage rate increases to $50 per hour? (5 points) PART I.B. WELFARE AND THE LABOR-LEISURE MODEL (24 points) Consider two types of welfare policies: universal basic income versus Milton Friedman's "negative income tax." Universal basic income provides every adult citizen with a regular monthly stipend, or "basic income." The "negative income tax"provides an lump-sum transfer of income and then taxes it away at a low marginal tax rate, t. In other words, the wage individuals earn is w*(1-t) income. 1. In separate figures, plot the budget constraints associated with each program. (5 points each) 2. Using the labor-leisure model and our in-class discussion, describe the pros and cons of both types of policies (e.g., cost, incentives and disincentives associated with individuals at different points on the budget constraint). (/ points) 3. How would changing the re-framing "non-market work" as "childcare" or "eldercare" alter the set of pros and cons you describe above? (3 points) 4. If you were advising the state of California, which policy would you recommend? There is no right or wrong answer-I am looking for a well-reasoned argument. You should make explicit what you think the government's objective function should be and how your policy recommendation achieves some/all of those goals. (4 points) Econ 152 - Assignment 3- Page 1 of 4\f8. Calculate the earnings ratio in the economy under study? (1 point) 9. How much does an additional year of schooling add to the average hourly wage of men and women? (1 point) 10. Plot the hourly wage profiles of men and women on the same graph. Label all of the intercepts and slopes. Also note the points that correspond to mean hourly wages and schooling for men and women. (3 point) 11. Use the Oaxaca decomposition to calculate the amount and the share of the earning difference that is "explained" by differences in human capital and the share that is "unexplained." (Do this by adding and subtracting Bum Sr. Make sure to write out the formula.) (3 points) 12. Now add and subtract Pa S_ instead. How does this change your answer? What is the intuition for why this changes your answer? (2 points) 13. Provide an explanation for your findings. What is the meaning of the results of the Oaxaca decomposition you performed? (In answering this, try to explain the approach and your key findings to someone like a journalist.) (3 points) PART III: OCCUPATIONAL SEGREGATION (20 points) The labor forces of the 4 communities of Youmich, Ewkla, Youseebee, and Ohessyou are made up of two groups of people (Exes and Whys) who work in four occupations (Acrobats, Barbers, Cooks, and Doctors). The table below gives the percent of each group of people who are employed in each occupation in each community. Percent of each group employed in each occupation Acrobats Barbers | Cooks | Doctor's Youmich Exes 40% 30% 20% 10% Whys 10% 20% 30% 10% Ewkla Exes 70% 10% 10% 10% Whys 10% 70% 10% 10% Youseebee Exes 50% 0% 50% 0% Whys 0% 50% 0% 50% Ohessyou Exes 25% 25% 25% 25% Whys 25% 25% 25% 25% 1. Calculate the Duncan Index of Dissimilarity for each community. Show your work. (You can find out how to do this in Jacobsen, chapter 6, and also in the lecture slides.) (4 points) 2. Which community has the highest level of occupational segregation? Which community has the lowest level of occupational segregation? (4 points) 3. Is the work force of Ewkla more or less segregated than the work force of Youmich? Explain how you Econ 152 - Assignment 3- Page 3 of 4know the answer. (4 points) 4. What proportion of the Exes (or Whys) would have to change occupations in order for there to be complete integration in each community? (2 points) 5. Look at Youmich. If 30 percent of the Exes switch from being Doctors to being Acrobats and if 10 percent of the Exes switch from being Cooks to being Barbers, would there be complete integration of the occupational structure? Explain. (6 points) Econ 152 - Assignment 3- Page 4 of 4