Effects of Immigration and Payroll Tax on Labor Economics
School
Sabanci University**We aren't endorsed by this school
Course
ECON 430
Subject
Economics
Date
Dec 10, 2024
Pages
2
Uploaded by canberkers
Fall 2024 ECON 430: Labor Economics Exercise 3 Q1. An economy consists of two regions, the North and the South. The short-run elasticity of labor demand in each region is –0.5. Labor supply is perfectly inelastic within both regions. The labor market is initially in an economy-wide equilibrium, with 600,000 people employed in the North and 400,000 in the South at a wage of $15 per hour. Suddenly, 20,000 people immigrate from abroad and initially settle in the South. They possess the same skills as the native residents and supply their labor inelastically.(a) What will be the effect of this immigration on wages in each of the regions in the short run (before any migration between the North and the South occurs)?(b) Suppose 1,000 native-born persons per year migrate from the South to the North in response to every dollar differential in the hourly wage between the two regions. What will be the ratio of wages in the two regions after the first year native labor responds to the entry of the immigrants? Q2. Below figure shows that a payroll tax will be completely shifted to workers when the labor supply curve is perfectly inelastic. In this case, for example, a new $2 payroll tax will lower the wage by $2, will not affect employment, and will not result in any deadweight loss. Suppose instead that labor supply is perfectly elastic at an age of $10. In this case, what would be the effect on wages, employment, and deadweight loss from a $2 payroll tax?
Q3. (a) What happens to wages and employment if the government imposes a payroll tax on a monopsonist? Compare the response in the monopsonistic market to the response that would have been observed in a competitive labor market.(b) Suppose a firm is a perfectly discriminating monopsonist. The government imposes a minimum wage on this market. What happens to wages and employment?