Homework in labor economics Assignment Example | Topics and Well Written Essays - 500 words

Homework in labor economics - Assignment Example (4c). at equilibrium price of $ 6 the amount of employment is 16. Suppose the government set a minimum price at 7, more workers will be induced to look for jobs. This will increase labour supply at the same time reducing demand for labour Setting a minimum wage in a two sector economy has a spillover effect in the two economy. For example a model where one sector is more productive than the other, setting a minimum wage in the unproductive sector to reduce the wage gap causes a negative spillover effect on the productive sector. As much as job creation in the unproductive sector is ambiguous, job creation in the productive sector unambiguously decreases. This is because a minimum wage increases the outside option of unemployed workers contributing to wage determination in the productive sector. (c) An increases payroll tax will mostly burden the workers. This burden can however be transferred to the firms through tax shifting. This way employing firm can help the employee carry the burden of the increased payroll tax As seen from the graph, if the worker evaluation of the compensation is less than the cost of providing it, the amount of labor supply will reduce in the market. This is represented by a downward shift in supply curve resulting into an increase in wages and decrease in