ECP3203 Contemporary Labor Economics

Assignment #1
1. For each group identified in bold type below, use the labor-leisure choice model to illustrate
graphically and then explain the change in the quantity of leisure desired. Be sure to explain
how the group’s labor force participation rate is affected.

a) The earnings of married men have decreased, thereby reducing the non-wage incomes
of married women.
b) Real wage rates for women have increased. Further, the substitution effect for women
is stronger than the income effect.
c) Real wage rates for men have increased. Further, the substitution effect for men is
dominated by the income effect.
d) Married women exhibit a stronger preference for market work over other non-market
uses of time.
e) Social Security has increased benefits and widened coverage for older citizens.

2. Steve Slacker is age 25, has an MBA degree, but is not working. Instead he is living at a
major ski area, using the $2,000 per week he gets from his wealthy family. The family,
however, seeing that Steve is becoming a permanent slacker, ends his weekly payment.
As a result, Steve chooses to take a job that pays $1,000 a week for 40 hours or work.

a) Construct a single income-leisure choice graph to show Steve’s situation before

and after his parent’s decision.
b) Briefly summarize the outcome as to hours of work, total weekly income, and
Steve’s total utility.
3. Comment on each of the following statements.

a) Given the work-life cycle of the “traditional” woman, it may be rational for
women to invest in less human capital than men.
b) An economic recession tends to stimulate college enrollment.
c) The age-earnings profiles as illustrated in the textbook clearly indicate that
people with more education earn more than people with less education;
therefore personal spending on education is always a good investment.