This assignment refers to sibling students, Jack and Jill, and their parents, who are labour economists. (Comparisons to the worked example in chapter 2 of the text are intentional but

ECON3362   Labour Economics                                    2023 Assignment 3 (due Wednesday, November 1, 2023 at noon)

This assignment must be completed independently, although you should feel free to discuss the assignment with other students or with the instructor. The instructor can be reached by e-mail, during scheduled office hours or by appointment at a mutually agreeable time. Late assignments will be subject to a penalty of 2% of final grade (20% of the value of the assignment) per day.

The assignment is worth 10% of the final grade.

Please note: Assignments should be submitted by email to the Teaching Assistant (mohammad.hasan@umanitoba.ca ) in a single Word file with graphs and tables imported as appropriate. Please make sure that your name and student number are on your assignment and embedded in your file name when you submit it by email.

 This assignment refers to sibling students, Jack and Jill, and their parents, who are labour economists. (Comparisons to the worked example in chapter 2 of the text are intentional but there are substantial differences, especially in Jill’s initial position in the labour market.) Jack and Jill are each given $50 per week by their parents (hereafter “the parents”) and each student chooses to work 10 hours per week at a job paying $15 per hour to begin this exercise (i.e. Jack and Jill are both in equilibrium at 10 hours). You can assume that Jack and Jill can freely choose their hours (even to the last minute) and you may round all answers to one decimal place.

Jack and Jill’s labour supply behavior is described by one of versions LOW, MEDIUM and HIGH below, one of which is assigned to you according your last name as indicated to the right of your name at the end of this assignment:

(You are encouraged to read carefully pp.59-62 of the text if you are unsure what these elasticities mean.)

Indicate which version (LOW, MEDIUM or HIGH) you have been assigned beside your name and student number on the first page of your assignment.

(1)  The parents contemplate giving Jack and Jill each an additional $50 of allowance each week, for a total allowance of $100. Using your assigned elasticities above, calculate the effect of this plan (an extra $50 per week) on the labour supply of Jack and the labour supply of Jill. [Hint: What is $50 as a percentage increase in their allowance per week?] Draw an appropriate

income-leisure diagram to explain Jack’s and Jill’s old and new equilibrium positions. [2 marks]

(2)  Alternatively, the parents contemplate giving Jack and Jill each a wage subsidy of $5 on each hour worked, effectively raising the wage rate for Jack and Jill to $20.  Using your assigned elasticities above, calculate the effect of this plan (an increase in the wage to $20 per hour) on the labour supply of Jack and the labour supply of Jill. [Hint: What is the percentage increase in their wage per hour?] Draw an appropriate income-leisure diagram to explain Jack’s and Jill’s old and new equilibrium positions. [2 marks]

(3)  Alternatively, the parents contemplate giving Jack and Jill each a wage subsidy only on additional hours worked per week beyond 10 hours. Using your assigned elasticities above, calculate the effect of this plan (an increase in the wage to $20 per hour above 10 hours) on the labour supply of Jack and the labour supply of Jill. [Hints: This is equivalent to an overtime premium of 33% (time and a third pay) above their original equilibrium hours worked at 10 hours. What is the income effect at 10 hours of work? For simplicity, you may assume the same income effect for all additional hours worked above 10 hours of work per week.] Draw an appropriate income-leisure diagram to explain Jack’s and Jill’s old and new equilibrium positions. [2 marks]

(4)  Draw a supply of labour curve for Jack, a supply of labour curve for Jill, and a total labour supply curve for Jack and Jill using the original and calculated data points for wages of $15 and

$20. [2 marks]

(5)  The parents want to encourage work. Set up an appropriate table that summarizes the work incentive effects of the contemplated plans (1) to (3) and ranks the three plans (from 1 to 3) on the basis of their work incentive effects for (i) Jack, (ii) Jill, and (iii) Jack and Jill combined. [2 marks]

Your assigned version (LOW, MEDIUM or HIGH) is below: