Sally recently finished her full-time training and received certification as a nurse's aid at the end of August. She sent out a applications to prospective employers during the last three weeks of August so that she would start work on September 1st. She followed up on her applications by making phone calls starting the day after she submitted them. During the month of September she continued to look for employment in the help-wanted ads of local newspapers and job openings listed online while she waited for calls for interviews.
a) How would the Bureau of Labor Statistics count Sally for the month of July? For the month of August? For the month of September? Explain your answers.
Towards the end of September, Sally’s savings dwindled to only afford
her $600 per month on consumption goods. She then decided to put an
application in at her local grocery store for a cashier position. The
grocery store, D-Town, offers her at a wage of $8.00 an hour for 30 hrs
a week (five days of six hour shifts). Even though she gladly accepts the
position (that starts October 1st), she keeps hoping that someone will
hire her as a full-time nurse’s assistant.
b) According to Bureau of Labor Statistics definitions, what kind of
worker will Sally be for the month of October? (Remember the
BLS’s different types of under utilization of the labor force.)
As mentioned in class, the labor supply model supposes that workers
choose how many hours they will work. Every week Sally asks her manager
if she can have some additional hours (she prefers 10 more), but her
manager says, “Sorry, but we don’t need you more than 30 hours a week
right now.”
c) Graph Sally’s labor supply decision for the month of October. Assume
that she maintains her $600 savings over the month, which
(because Sally needs to sleep 8 hours each day) has a total of
496 hours available for working and/or leisure. For the moment, assume
that Sally has typical, smooth, convex shaped indifference curves.
Be sure to depict her dissatisfaction with her manager’s choice
of hours.
In the last week of October Sally’s manager asks her to work for 5
additional hours twice a week(for the Halloween-weekend rush), such that
on two days she will work a total of 11 hours. The labor laws of the
state where this D-Town does business say that grocery store workers
must be paid overtime for the hours of labor in excess of eight hours per
day even if the worker does notwork more than 40 hours a week. The
overtime pay stipulated in the law is “time and a half,” or w XXXXXXXXXX)
per hour. Sally likes the higher pay so much that her optimal amount of
hours of work—with the overtime pay—turns out to be more than 40 hours
per week.
d) Assuming the same, typical indifference curves used in the
previous question, graph Sally’s labor supply decision for the
last week (124 hours) of October. Your graph should include
Sally’s preference of 40 hours per week over 30 hours at $8.00 an hour,
her indifference curve at 40 hours per week at the overtime wage,
and her optimal hours at the overtime wage. Also, be sure
to include the amount of the overtime wage, her $600 savings
adjusted to a weekly amount, the amount of hours for which the overtime
wage is paid, and her final consumption level under the ‘30 hrs
at $8.00’ and ‘40hrs at overtime’ schedules.
Sally gets a call from Mount St. Barclays Hospital for an interview
November 1st. In the interview a hospital administrator states that the
salary for the position will be determined later, only after all the
interviews of the job candidates have been completed. Minutes afterwards
during the interview they ask Sally if she is willing to work 60 hours a
week if the hospital needs her to(which could be a regularity). Given
that Sally can only give honest responses to questions, she is perplexed
as to how to answer the question, since the range for a nurse’s
assistant salary is between $24,000/year and $33,000/year.
e) Provide a graph that explains why Sally has difficulty in answering
the question on a weekly basis (i.e., T = 124). Assume the
following (1) there are 48 work weeks per year, (2) that she’ll
be paid a salary (not a wage), (3) that the 60 hours they are asking
about are mandatory for the job, and (4) that she is comparing
these two extreme salaries to each other and being
Out-of-the-Labor Market (that is, she is not comparing them to her
current situation at D-Town). Assume also that she would maintain $600
savings per month for consumption.
The day after the interview at Mount St. Barclays, Sally receives an
offer from them: a salary of$30,000 as a nurse’s assistant for five
days a week at their outpatient site in the town of Boufou,which is
approximately a two hour drive from where she lives. (The mandatory
hours are40/week and will not regularly exceed amount.) She tells them
that she needs a day to think it over, in which time she determines that
the commute each day will total four hrs. Moreover,there is no public
transportation she
can take for the commute, so she will need to buy a car (which she
estimates will exhaust all of her $600 set aside for monthly
consumption).
f) Graph Sally’s offer. Assume T = 496. Be sure to show her
effective reservation wage under the combined commute and car
purchase required for her to do this job. Draw the graph such
that she would readily accept the offer if there was no need for a car
and four hr commute per day, but that she will have to reject it
as it is.
After Sally rejects the offer from Mount St. Barclays, she is called in
for an interview at Regis Medical Group, which goes extremely well: by
the end of the week she is offered a position with a salary of
$30,000/year. The total hours per week requested from her can vary, but
she is required to supply at least 40 hours a week. (For the following
questions, use a weekly amount of hours, T = 124, assuming 48 work weeks
in the year. She also maintains her $600/month savings for consumption
goods.)
g) Sally’s utility function over hours of consumption (C) and leisure
(L) is U(C, L) = C^(0.7)L^(0.3). What is her level of utility at 40
hours of labor per week at this salary?