Consider a guest worker program whereby Mexican

citizens could work in the U.S.

Consider a guest worker program whereby Mexican citizens could work in the U.S.

Question

Consider a guest worker program whereby Mexican citizens

could work in the U.
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could-work-in-the-u-s
Consider a guest worker program whereby Mexican citizens could work in the U.S.

Question

Consider a guest worker program whereby Mexican citizens

could work in the U.S.

People in Mexico would be matched with a U.S. employer. The employer would have to

demonstrate a need for workers and prove that U.S. citizens won't take the jobs. The

matched workers would get "guest worker" cards

allowing them to stay in the US for

three years. The

cards would be renewable for three-year periods but not indefinitely.

a. Draw labor market demand and supply graphs showing the change in labor

demand and/or labor supply in the U.S. and in Mexico

resulting from this

program. (So you want

two labor supply curves: one for Mexico and one for the

United States.) Explain your graphs. Assuming that Mexican

citizens currently

face formidable barriers to working in the United States,

what effect would you

expect enactment of this program to have on equilibrium

wages and employment
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in each country? (i.e. What happens in Mexico? What happens in the US?)

b. Such a program involves administrative costs. Suppose

that after a year of

operation, the U.S. government starts to recover these

administrative costs by

making employers with guest workers pay a tax equal to 10%

of the wages paid to

their guest workers. Draw labor market demand and supply

graphs showing the

change in labor demand and/or labor supply in the U.S. and

in Mexico resulting

from this policy for recovering administrative costs.

Explain your graphs. What

effect would you expect enactment of this program to have on

equilibrium wages

and employment in each country?

2. In a particular industry the labor supply curve is

W=10+2NS while the labor demand

curve is W=40-ND, where NS is labor supply and ND is labor

demand in employment

terms.

a. What are the equilibrium wage and employment if the labor

market is

competitive? What is the unemployment rate in the

competitive market?

b. Now suppose that the government sets a minimum hourly

wage of 36. How many

workers would lose their jobs? How many additional workers

would want to work

at this wage? What is the unemployment rate?

c. Return to the conditions in Part A (no minimum wage).

Suppose the government
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imposes a payroll tax of 6 per unit of labor. The legal
incidence of the tax is on the

firm. Use supply and demand curves to show the effect of

this payroll tax on

employment and wage rates. What is the new employment level

with the payroll tax? What wage rate will workers receive? How much tax revenue does the

government collect?

d. Return to the conditions in Part A (no minimum wage).

Suppose the government

imposes a payroll tax of 6 per unit of labor. The legal

incidence of the tax is on the

worker. Use supply and demand curves to show the effect of

this payroll tax on

employment and wage rates. What is the new employment level

with the payroll

tax? What wage rate will workers receive, both before and
after tax? How much

tax revenue does the government collect?

e. (Just for your own thought and study – not part of the
homework – what if there

was a minimum wage in parts c and d. When would it be binding? What effect

would it have?)

3. A firm is choosing how much labor and capital to use. Use

the optimizing logic or the

"doing my best means I can't reallocate and do

better" logic to find the rule the firm should

use. Write out every step in the logic.

Guide in thinking about what to do. Consider reallocating from labor to capital:

a. what do I lose?

b. how much money do I save

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c. what can I buy with that money

d. what is the extra worth?

Then set loss = gain and interpret. (Rearrange the resulting equation to make it
easier to

interpret.)

4. Most college students face a situation where they can

take a temporary (or seasonal) job

in the summer at a fairly low wage or quit college and take

a permanent job at a much

higher wage. Why

would the same person receive different wages for the two types of

jobs? Using demand

and supply curves (graphs), and assuming perfect competition,

explain the differential in wages.

5. Suppose wage and health insurance are the only two job
characteristics that workers care

about. In an environment in which employers are not required

to offer health insurance to

their workers, describe the relationship between the wage

level in a particular job and

whether the job offers health insurance. What happens to the

wage structure if the

government requires all firms to offer a standard package of

health insurance to their

workers?

6. Consider a
production process that uses both labor and capital. Assuming that these two

factors are substitutes for each other in production,

analyze and show graphically the

effects of each of the following on an employer's long-run

demand curve for labor:

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a. An increase in the wage rate.

b. An increase in the cost of capital.

c. A decrease in the cost of capital.

d. An increase in both the wage rate and the cost of

capital.

e. An increase in the demand for the product

7. Briefly explain how the following programs would affect

the elasticity of demand for

domestic workers in the domestic steel industry, if at

all. Assume that “domestic” means

the United States.

a. A law which requires each car sold in the US to have at

least 80% of its steel

content be from domestically produced steel.

b. A decrease in the elasticity of the supply of materials

which are substitutes in

production for labor.

c. Discovery of a less polluting way to make steel, which

increases the demand for

steel (relative to petroleum based products like plastics).

Consider a guest worker program whereby Mexican citizens could work in the U.S.

Attachments
170011.docx (220.86 KB)

Preview: labor xxxxxx in xxx Mexico would xxxxxxxxx causing labor xxxxxx curve xx xxxxx
rightward xxxxx SS1 to xxxx As a xxxxxxx equilibrium xxxx xxxx fall xxx to W2) xxx equilibrium
employment xxxxx rise xxx xx E2) xx the Mexico xxxxxx figure4]Figure4:2 In x particular
xxxxxxxx xxx labor xxxxxx curve is xxxxxxxx while the xxxxx demand xxxxx xx W=40-ND, xxxxx
NS is xxxxx supply and xx is xxxxx xxxxxx in xxxxxxxxxx terms a xxxx are the xxxxxxxxxxx
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 wage xxx xxxxxxxxxx if xxx labor market xx competitive? What xx the xxxxxxxxxxxx xxxx in xxx
competitive market? xxxxxxxxxxxx supply curve xx W=10+2NS, xxxxxxx xx = xxxxx – 5 xxx
labor demand xxxxx is xxxxxxxx xxxxxxx ND x 40-WAt equilibrium, xxxxx demand = xxxxx
supply x x 10+2N xxxxxx implies equilibrium xxxxxxxxxx N* = xxxxx equilibrium xxxx xx =
xxxxxxx = $30At xxxx competitive wage, xx note xxxx xxxxxxxx demanded xxx labor equals
xxxxxxxx supplied, so xxxxxxxxxxxx rate xx xxxx in xxx competitive market x Now suppose xxxx
the xxxxxxxxxx xxxx a xxxxxxx hourly wage xx 36 How xxxx workers xxxxx xxxx their xxxxx
How many xxxxxxxxxx workers would xxxx to xxxx xx this xxxxx What is xxx unemployment
rate? xxxxxxxxx the xxxxxxx xxxx of xxxx labor supplied xxxxx = (36/2)-5 x 13 xxx xxxxx
demanded xxxxxx = 40-36 x 4At competitive xxxxxxxxxxxx labor xxxxxxxx xxx 10 xxx now it xx
just 4 xx at xxxx xxxxxxx price, x workers will xxxx their jobs xxxxxx supply xx xxxxx = xxxxx
supplied (at xxxx = $36) xxxxxxxx labor xxxxxxxx xxx W=$36) x 13-4 = x workers This xxxxxxx
that x xxxxxxxxxx workers xxxxx want to xxxx at this xxxx Unemployment xxxx x unemployed
xxxxxx total labor xxxxxxxxxxxxxxx labor = xxxxxx supply xx xxxxx = xxxxxx labor force x total
labor xxxxxxxx at xxxx xxx = xxxx unemployment rate x 9/13 = x 6923 xx xx 23%c xxxxxx to the
xxxxxxxxxx in Part x (no xxxxxxx xxxxx Suppose xxx government imposes x payroll tax xx 6 xxx
xxxx of xxxxx The legal xxxxxxxxx of the xxx is xx xxx firm xxx supply and xxxxxx curves to xxxx
the xxxxxx xx this xxxxxxx tax on xxxxxxxxxx and wage xxxxx What xx xxx new xxxxxxxxxx
level with xxx payroll tax? xxxx wage xxxx xxxx workers xxxxxxxx How much xxx revenue does
xxx government xxxxxxxx xxxxxxxxxxxx the xxxxx incidence of xxx tax is xx the xxxxx xxx labor
xxxxxx curve would xxx affected The xxx labor xxxxxx xxxxx is xxxxx as:New demand xxxxxx
W=40-ND – x = xx xxxxxxxxxx or x = 34 xxxxxxxx ND, implies xx = xxxxxxx xxx equilibrium xx
found by xxxxxxxx this new xxxxxx curve xxxx xxx labor xxxxxx curve: NS x (W/2) – x i x xxxx
= xxxxx – 5, xxxxxxx equilibrium wage xxxxxxxxx rate xxxxxxxx xx workers x $26New
equilibrium xxxxxxxxxx (N**) = xxxxx = xxxxx xxxx by xxxxxxxx = 26+6 x $32Tax revenue
xxxxxxxxx by xxxxxxxxxx x 6*new xxxxxxxxxx level = xxx = 48d xxxxxx to xxx

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