Problem Set 3 a. Without immigration, the market-clearing wage is \$12, at which all 120 million low-skill U. S. workers are employed. With immigration, the market-clearing wage is \$10, at which all 120 million low-skill U. S. workers and all 20 million immigrants are employed. The additional surplus received by the U. S. because of the immigration equals (\$12 – \$10) (140m – 120m) / 2 = \$20 million. The total transfer from U. S. workers to U. S. firms because of the immigration equals (\$12 – \$10) (120m) = \$240 million. (b). For the immigration, it would face a marginal cost of labor curve that is identical to the supply curve.

As a result, the employment level of due to the complement equals the employment level that would be observed in a competitive market (at E*) The imposition of a minimum wage at wMIN leads to the same result as in a competitive market: the firm will only want to hire ED workers as wMIN is now the marginal cost of labor, but ES workers will want to find work at the minimum wage. Thus, the wage increases, but employment falls. 2a. The initial equilibrium is given by 10 + 8E = 60 – 2E.

Solving these two equations simultaneously implies that w = \$50 and ES = ED = 5. When demand increases to w = 80 – 2E, the new equilibrium wage is \$47.5 and the equilibrium level of employment is 7.5, which is again found by solving the two equations simultaneously The values for levels are in each round. The values in the table are calculated by noting that in any given period the number of architects is in elastically supplied, so that the wage is determined by the demand curve.

Given this wage, the number of architects available in the next period is calculated. By round 3, the market wage rate is within 30 cents of the new equilibrium b. 3.. Initially, the monopsonist hires EM workers at a wage of wM. The imposition of a payroll tax shifts the demand curve to VMP and lowers employment to E and the wage to w. Thus, the effect of imposing a payroll tax on a monopsonist is qualitatively the same as imposing a payroll tax in a competitive labor market: lower wages and employment.

(It is interesting to note that the same result comes about if the payroll tax is placed on workers, so that the labor supply and marginal cost of labor curves shift as opposed to labor demand. b. 4 The glamorization of job-related risks may make people more willing to take these risks. This increases the supply (shift out) of workers to risky jobs and reduces the compensating differential Thus, information on whether employment in the risky sector increased or decreased can help discern between the two competing explanations: if employment in risky jobs went down then it is likely due to technology; if employment in risky jobs went up it is likely due to preferences. 5a.

The supply curve to the risky job is given by the fact that worker 1 has a reservation price of \$1, worker 2 has a reservation price of \$2, and so on. As the figure below illustrates, this supply curve (given by S) is upward sloping, and has a slope of 1.

The demand curve (D) for risky jobs is perfectly inelastic at 10 jobs. Market equilibrium is attained where supply equals demand so that 10 workers are employed in risky jobs; the market compensating wage differential is \$10 (or, at least some number at least \$10 at not yet \$11) since this is what it takes to entice the marginal (tenth) worker to accept a job offer from a risky firm. Note that the firm employs those workers who least mind being exposed to risk. b. If tastes towards risk change, the supply curve shifts down to S and the market equilibrium is attained when the compensating wage differential is -\$1.

This is the compensating differential required to hire the marginal worker (that is, the 10th worker). Note that this compensating differential implies that even though most workers (from worker 12 onwards) dislike risk, the market determines that risky jobs will pay less than safe jobs. Works Cited Economic, Finance and General Business. 5 March 2015 .