Final exam for Labor Economics
January 13, 1999
Instructor: Hung-Lin Tao
Welcome to this exam.
There is only one page for this exam.
GOOD LUCK!!!
Answer the questions below.
1. When wage declines, employment changes. This change comes from two effects: substitution effect and scale effect. Draw a figure to explain these two effects. [15 points]
2. (a) What is reservation price? [5 points]
(b) Under what condition a worker is willing to do the risky job? [5 points]
(c) When we observe someone is working on a risky job, must be his payment higher than others doing safe jobs? [10 points]
3. In many countries, unemployment insurance (UI) systems pay a fraction of the salaries when workers lose their jobs. Some labor economists think that if the layoffs are perfectly forecastable, there is no need to pay this kind of unemployment compensation. Do you agree? [15 points]
4. There are two models explaining individuals’ schooling behaviors. What are they and what do they argue? [10 points]
5. In Taiwan, a traffic safety policy, if implements, can save 5000 people’s life. However, the policy would cost NT$ 100 million to implement. What the policymakers know is that a general construction worker earns NT$ 60,000 per month, and a similar tunnel construction worker (which is more dangerous than the former, the fatal death rate is higher by 1 percent) earns NT$ 70,000 per month. With the information in hand, what will be the best decision that the policymakers should make? [20 points]
6. (a) Can we use wage differential to estimate return of schooling? Justify your answer. [10 points]
(b) Must individuals with higher ability have a higher marginal return rate of schooling? Justify your answer. [10 points]
JJJJ Have a nice winter break and a wonderful Chinese new year! JJJJ