LABOR ECONOMICS HW

1. Examine the labor market for low-skilled workers and the value of the marginal product of labor is given by: VMPL = 15 0.001L

and Labor supply is described by the following equation: LS = 1000w

a. Find the equilibrium wage rate and employment level.

b. Find the firm surplus and the worker surplus.

c. Suppose the government imposes a $10 minimum wage in this market. Quantify the effect of this on the wage rate, employment level, worker surplus, firm surplus. Additionally, find the deadweight loss.

2.Consider a monopsonistic market. The only employer in town is ACME Coal Mine, Inc. Migration out is expensive.

The value of the marginal product of labor is: VMP_L = 12 L

The inverse labor supply curve is: w = LS

The marginal labor cost curve is: MLC = 2L

a. Quantify the deadweight loss in this labor market due to monopsony.

b. Quantify the surplus transferred from workers to ACME due to monopsony.

3. The log of labor market earnings, ln w is a function of years of schooling, S and years of work experience, X and m stands for men and f for female

The table below describes the mean of each variable for each type: