Graph both the individual’s labor supply decision graph and the labor supply graph for the following...

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Graph both the individual’s labor supply decision graph and the labor supply graph for the following situations. (The labor supply decision graph should assume a positive level of nonlabor income.) a. An individual does not change her hours of labor supplied, regardless of the wage rate. b. An individual labor supply curve is backward-bending at higher levels of the wage, but positively sloped at the lower levels of the wage. (2) Consider a hypothetical labor force dynamics scenario for the month of November 2012. The stocks are the following: unemployed (U) = 5 million, employed (E) = 10 million, and Not-in-theLF (~LF) = 3 million. From the beginning of November to the end of November the change in U is (+)1 million and the change in ~LF is (+)1 million. The flow from ~LF to U is 2 million, and the flow from U to ~LF is 1.5 million. The flow from U to E is 2 million, and the flow from E to U is 2.5 million. a. What are some possible flows between E and ~LF? b. What is the change in the stock of E? Labor Economics Problem Set One Spring XXXXXXXXXXAnswer the following questions using the BLS’s Employment Situation Report from February 1st, XXXXXXXXXXa) Fill in the table below the Household Data (“Summary Table A” will be sufficient). Be sure to use the “Seasonally Adjusted” numbers and express the absolute numbers in thousands (as given in the data). (b) What happened to the Participation Rate since over the past year? (c) Why isn’t the change in Employed the negative of the change in Unemployed? (d) Did the amount of workers in the Labor Force increase or decrease over the past year? By how much? (e) Did the amount of workers Not-In-The-Labor Force increase or decrease over the past year? (f) How is it possible for the Population to increase less than the stock of people Not-in-theLabor Force? Where are these ‘extra people’ coming from? (g) What was the change in Employment between December 2012 and January 2013 according to the Household Data? (h) What would the Unemployment Rate be for January 2013 if the value of Employed (E) was taken from the Establishment Data (total non-farm employment on Table B-1), while the value of Unemployed (U) was taken from the Household Data?

Robert · Accepted Answer

Problem Set 1 (Spring 2013)
1. (a) If an individual does not change his/her labor supply irrespective of wage rate then the labor supply curve would be vertical and parallel to the y-axis. In the figure below, hours is fixed at 20 hours, irrespective of the wage rate.
(b) Backward bending labor supply curve at higher levels of wage rate and positive at the lower levels of wage rate. Hours worked increases up to wage rate W2, where the labor supply curve is positively sloped and then it starts declining giving a backward bending shape to the labor supply curve. 
2. (a) Unemployed (U) = 5 million, employed (E) = 10 million, and Not-in-the-LF (~LF) = 3 million. Beginning of November to the end of November: U = 6 million, ~LF=4 million.
(i) Change in U:
Before the increase U = 5 million and after the increase U = 6 million.
~LF to U = 2 and E to U = 2.5, therefore, U increases by 4.5.
Again, U to ~LF = 1.5 and U to E = 2, therefore, U decreases by 3.5. 
Hence, net change in U is 4.5 - 3.5 = 1, and U = 5+1=6 million (proved).
(ii) Change in ~LF:
Before the increase ~LF = 3 million and after the increase ~LF = 4 million.
U to ~LF = 1.5 and ~LF to U = 2, therefore, change in ~LF = 1.5 – 2 = -0.5, therefore, net change in ~LF = 3 – 0.5 = 2.5.
Again, E before any change = 10 million.
U to E = 2 and E to U = 2.5, therefore, change in E = 10+2-2.5 = 9.5.
Possible cases: 
(I) Transfer 1.5 from E to ~LF and no transfer to E, then ~LF = 2.5 +1.5=4 million and E = 9.5 -1.5 = 8 million.
(II) Transfer 2.5 from E to ~LF and 1 from ~LF to E, then ~LF = 2.5 + 2.5 - 1 = 4 million and E = 9.5 – 2.5 + 1 = 8 million.  And so on…. 
(b)   Before change E= 10 million, after change E= 8 million. Therefore change in stock   
       of E= 10-8=2 million.
3. (a)
	 
	Labor Force (LF)
	Employed (E)
	Unemployed (U)
	Unemployment Rate (UR)
	Not-in-the Labor Force (~LF)
	Population
	Participation Rate
	Employment Population Ratio
	Jan-13
	155654
	143322
	12332
	7.922700348
	89008
	244662
	63.6200146
	58.5795914
	Jan-12
	154356
	141608
	12748
	8.258830237
	87913
	242269
	63.71265
	58.4507304
	Changes
	1298
	1714
	-416
	-0.336129888
	1095
	2393
	-0.09263544
	0.12886105
	Percent Change
	0.84091321
	1.210384
	-3.26325698
	 
	1.2455496
	0.987745
	 
	 
****Numbers are in thousands
(b) Participation rate has decreased from 63.71% to 63.62%.
(c) LF = E + U …… (Eq1)
Net change between years 2012 and 2013: 1298 = 1714 – 416, which balances.

Graph both the individual’s labor supply decision graph and the labor supply graph for the following situations. (The labor supply decision graph should assume a positive level of nonlabor income.) a....

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