Labor Economics Midterm 2

Temporal flexibility leads to a split in job selection. A large part of the pay-gap is due to the disparity in experience between men and women. *Men and Women earned the same immediately after graduation from a highly ranked business school, but women were making 40% less 15 yeas later. Difference associated with fewer hours of work.

"Experience gap" attributed to child care. Proposal: change certain aspects of our school system (i.e. extending the day/yr --> make women no longer have to demand temporal flexibility)

LABOR DEMAND: How is the elasticity of substitution defined?

(The % change in K/E)/(The % change in w/r)

HUMAN CAPITAL: Should the gov't subsidize education?

- Human Capital model says yea, because then people would deb more productive and it would increase economic growth - Signaling model says no cause it would just weaken the signal (would be counterproductive to subsidize college tuition)

IMMIGRATION: What was the yearly increase of unauthorized immigrants between 1995 and 2004? From 2005-2010?

1) 600,000 2) 300,000

VOUCHERS: Advantages

1) Consumer sovereignty 2) Competition

Reasons for earnings gap

1) Education 2) Experience 3) Occupational choice 4) Unexplained

VOUCHERS: Problems

1) Excessive school specialization 2) Increase segregation (among ability?) 3) May be inefficient and inequitable use of resources 4) Gov't may be reluctant to let certain schools go out of business 5) Cost of special education

HUMAN CAPITAL: 2 theories why returns to education are positive

1) Human capital 2) Signaling: education signal high ability because the total cost was lower for that worker (had to repeat fewer courses, got $, lower psychic costs)

What caused employment ratio and LFP rate decline? (Both black and white men)

1) Increase in college enrollment 2) Earlier labor force withdrawal among older men (Income Effect) 3) Increase in discouraged workers due to lower demand for low-skill workers

PAYROLL TAX: Advantages of PP over MB

1) MB only helps those employed 2) Those who need benefit the most are least likely to get hired 3) MB might fuel the growth of government

PAYROLL TAX: Advantages of MB over Public Provision

1) Might be more politically feasible 2) Less employment loss

HUMAN CAPITAL: 2 hypothesis about the true returns to education

1) Rate of return is too high --> a college-grad type has higher ability and would be more successful than a high school grad type at any job 2) Rate of return is too low --> a college-grad type would be very bad at jobs that don't require a college degree (would deb a good academic but a bad auto-mechanic)

IMMIGRATION: Two naive views of immigration

1) That illegal immigrants do jobs no American would want to do 2) That every employed illegal immigrant is taking a job from an American

INEQUALITY: Three possible causes for the widening gap between the wages of highly educated and less-educated workers.

1) The supply of less-educated workers might have risen faster than supply of college grads (NO b/c wage AND employment fell --> needs to be a demand side story) 2) Demand for more-educated workers might have increased relative to the demand for less-educated workers. 3) Changes in institutional forces (MW, decline of unions, might have reduced relative wages of less-educated workers)

LABOR DEMAND: Slope of isoquant

1) change in capital/change in labor 2) (-MPe)/(MPk) 3) MRTS (absolute value of isoquant)

LABOR DEMAND: Labor demand is more elastic ...

1) the greater the elasticity of substitution 2) the greater the elasticity of demand for the output 3) the greater labor's share in total costs 4) the greater the supply elasticity for other factors of production

IMMIGRATION: How many unauthorized immigrants were living in the US in 2007?

12 million

*The unadjusted gender gap is explained to a large extent by nondiscriminatory factors. These factors are unlikely to change in the near future unless the roles of women and men in the home become more nearly identical.

:(

LABOR DEMAND: What's an isoquant?

A curve that describes the possible combinations of labor and capital that produce the same level of output

INEQUALITY: Did declining unionization affect inequality?

Accounted for 20% of inequality in men in the 1980's but had no important role after that.

VOUCHERS: Crowd Out

As the gov't provides more of a public good, the private sector will provide less

Who has a higher LFP rater? Black women or white women?

Black women

INEQUALITY: Capital and skilled labor are gross _____________

Complements (increased in demand for skilled labor)

IMMIGRATION: Who are clear cut gainers from immigration?

Consumers, workers, owners (complements)

PAYROLL TAX: Is a tax more inefficient if the labor demand or supply is elastic or inelastic?

ELASTIC

PAYROLL TAX: When the cost of providing a benefit is more than how much workers value the benefit...

Employment goes down, only workers benefit, firm bears costs, wage goes down

Occupational segregation

Exists when the distribution of occupations within one demographic group is very different from the distribution in another.

What explained the largest part of the observed gender gap in earnings?

Experience (b/c women have more child-rearing experience than men)

PAYROLL TAX: Is there a bigger employment loss when the tax is levied on firms or workers?

FIRMS (less unemployment when tax levied on workers)

MANDATED BENEFIT: Definition of MB

Government mandates that employers provide their workers with some benefit

IMMIGRATION: Consumer and Producer Surplus both increase when low-skilled immigration increases (because wage decreases

If labor demand increases though because immigration increases the population of consumers than the downward effects on wages in the market for rough labor would be moderated.

1980-2011 (Education groups):

Increasing inequality across education groups

Labor Market Discrimination

Individual workers who have identical productive characteristics are treated differently because of the demographic groups to which they belong.

LABOR DEMAND: What is a production function

It describes the technology that the firm uses to produce goods and services

INEQUALITY: How can we explain the reduced inequality in the lower half of the earnings distribution after 1990?

Many low-skilled jobs can't be automated. Tech increased the demand for non routine manual jobs in addition to skilled jobs.

PAYROLL TAX: Does the statutory burden of a tax describe who really bears the burden?

Nahhhzzz (statutory incidence DOES NOT equal economic incidence) **The side of the market on which the tax is imposed is irrelevant to the distribution of the tax burdens (if there are no impediments to wage adjustment i.e. MW)

INEQUALITY: Unemployment hasn't increased

No economic law says the jobs are destroyed with technology

COMPENSATING WAGE DIFFERENTIAL: For insured, leave correlation - Beta Estimate < Real Beta (ESTIMATE TOO LOW)

Omitted Variable: GOOD JOB

Wage discrimination

Paying women less than men with the same experience and working under the same conditions in the same occupations.

IMMIGRATION: Slight very small negative correlation between native wage and immigrant population

Probably misleadingly small because not accounting for mobility of natives

PAYROLL TAX: What type of payroll tax is medicare?

Progressive (pay bigger percentage as income gets higher)

PAYROLL TAX: What type of payroll tax is social security?

Regressive (pay smaller percentage as your income gets higher)

Is it easier to prove occupational discrimination or segregation?

Segregation (could be preferences)

INEQUALITY: What do economists generally agree on as the one phenomenon underlying these shifts in demand?

Skill-based technological change (increased productivity of highly -skilled workers and reduced the need for low-skilled workers)

INEQUALITY: Capital and unskilled labor are gross _____________

Substitutes (decrease in the demand for unskilled labor)

PAYROLL TAX: Pay Roll Tax Definition

Tax levied on firms or workers that is fixed at $x per unit of labor

PAYROLL TAX: What was the TJTC

The Targeted Jobs Tax Credit Program that aimed to increase employment for disadvantaged youth. It worked but was discontinued.

For both men and women, the unemployment rate among blacks is approximately twice that among whites

The constant ratio means that blacks suffer disproportionately in a recession.

LABOR DEMAND: If cross-elasticity of factor demand is negative

The inputs are gross comps

LABOR DEMAND: If cross-elasticity of factor demand is positive

The inputs are gross subs

COMPENSATING WAGE DIFFERENTIAL: Empirical evidence on job lock

The real deal. Reduces mobility by as much as 25%.

1980-2011 (Men):

The real earnings of HS dropouts and graduates DECREASED, and the real earnings of those with a college or graduate education increased.

1980-2011 (Women):

The real earnings of HS dropouts decreased. The real earnings of HS graduate increased slightly. The real earnings of those with a college degree or graduate education increased.

LABOR DEMAND: A profit maximizing firm hires workers up to the point where...

The wage rate equals the value of marginal product of labor

Oaxaca decomposition: does it understate or overstate the true impact of discrimination?

Understate: doesn't take feedback into account. If women anticipate getting paid less than men, they might invest less in human capital in the first place. Women earn less because they have less human capital but they might have less human capital because of discrimination. (Might be discrimination or just less of an attachment to the labor force because they have a shorter time period to recoup their investment. Overstate: Estimate might overstate because doesn't take into account unobserved differences associated with gender that might affect earnings. 1) Preference for child-rearing (?) 2) Women might require a more flexible work schedule

11 percent of the pay gap between blacks and whites cannot be explained (discrimination)

Understated: not taking feedback into account Overstated: Measures of school quality are incorrect

PAYROLL TAX: When the cost of providing a benefit is less than how much workers value the benefit...

Wage goes down, employment goes up, firms and workers both benefit

INEQUALITY: Import-Export relationship

Well-educated are exporters, less-educated are importers

Occupational discrimination

Women with the same education and productive potential are seen as shunted into lower-paying occupations or levels of responsibility by employers who reserve the higher-paying jobs for men

LABOR DEMAND: How is the cross-elasticity of factor demand defined

percentage change in the demand for input i resulting from a 1% change in the wage of input j

INEQUALITY: Did the decline in the real minimum wage affect inequality?

yes in the 80's but not after the 90's.