May Examination Period 2021

ECN356 Labour Economics Duration: 3 hours

Answer ALL questions

Section A carries 45 marks and Section B carries 55 marks
This examination paper MUST NOT be shared with anyone else. Doing so will be considered a
very serious assessment offence under the Queen Mary Academic Misconduct Policy.

This examination is an individual assessment and must be entirely your own work. All work will be
run through the plagiarism software, Turnitin. The software will also compare your script against all
other student submissions. Any evidence of plagiarism or collusion will be taken forward as
acacemic misconduct.

Calculators are permitted in this examination.

Please ensure that your working is clearly shown with all steps of your calculation included in your
answer document, including any formula used.

When writing formulas, please note the following:

• It is acceptable to use the standard alphabet rather than greek letters. The following are
recommended: m for µ, s for s, w for w, r for r, d for D, b for b

• For mathematical operators: add +, subtract -, multiply *, and divide /

• Where appropriate, use an underscore to indicate a subscript, Eg r_f for r f

• Use the ^ character for power, eg x^2 for x 2 , x^0.5 for √x

• As an alternative to x^.5 you may type sqrt(x).

• Use brackets as necessary. To make your answer clearer use different brackets where appropriate, eg
[] {} ()

Examiner: Dr. Anna Raute

© Queen Mary, University of London, 2021

Page 2 ECN356 (2021)

SECTION A: Answer ALL questions

Question A.1

Assume robots are complements to high-skilled workers and substitutes to low-skilled

workers in production. Deploying robots has recently become easier and cheaper for
firms. What would you predict will happen to wages and employment of both types of
workers? How will this affect earnings inequality? Briefly explain your answer.

[15 marks]

Question A.2

Among single non-college-educated women aged 30 – 40, average hours worked per
week is 30 and the average wage is £12 per hour. A researcher collects data and finds
that when the average wage increases to £15 per hour, average hours worked per week is
now 27 hours.
a) What is the elasticity of labour supply for this group of workers? Interpret your findings.
Can you think of reasons for the sign of the elasticity for this particular group?
[10 marks]
b) Do you assume the elasticity of married non-college-educated women aged 30 – 40 to
be similar? Briefly explain your reasoning.
[5 marks]

Question A.3

A researcher has data from a multinational firm across various countries and computes
gender wage gaps within the same firm across the different countries. They find that the
gender gap is higher in countries with high female labour force participation. In light of
what we discussed in class, briefly explain this finding.
[15 marks]
ECN356 (2021) Page 3

SECTION B: Answer ALL questions

Question B.1

Suppose that the UK government is interested in increasing the labour supply of mothers
with young children, below the age of 5. To this aim, it introduces 30 hours of free
childcare to working mothers.

Before the government introduces a free childcare programme on a large scale, it runs a
pilot project, and introduces free childcare only in a particular small area (Region A). You
are asked to evaluate the pilot project. You have collected data on mothers’ labour force
participation (an indicator variable for employment) for a sample of mothers in Region A
(where free childcare was introduced) and Region B (where no childcare was introduced).
You also collect information on mothers’ education levels (mothers have “high education”
if they have a university degree and “low education” otherwise):

Table 1: Employment rates of mothers with low education

Before childcare expansion After childcare expansion

Region A (treatment group) 0.54 0.64

Region B (control group) 0.50 0.52

Table 2: Employment rates of mothers with high education

Before childcare expansion After childcare expansion

Region A (treatment group) 0.75 0.76

Region B (control group) 0.70 0.71

a) Use the data in Table 1 and Table 2 to answer the following questions:
i) What is the difference-in-difference (DID) estimate of the childcare expansion on
maternal labour supply for each group? Show your working.

ii) Interpret your findings. Are they consistent with economic theory?
[15 marks]
Continues on next page….

Turn Over
Page 4 ECN356 (2021)

b) What is the key assumption one needs to make so that the difference-in-differences
estimator identifies the causal impact of the childcare expansion? Can this assumption
be "tested" in this case? What kind of data would you need to do so?
[10 marks]

c) Researchers have found that the free childcare availability also incentivised women to
have children. Is that a problem for identification of the causal effect of the policy? If
so, how do you think this would affect your DID estimate in a)?
[5 marks]

d) Researchers find positive and statistically significant improvements in child

development for children of low skilled mothers. Which factors can explain this positive
effect?
[10 marks]

Question B.2

Black and Minority Ethnic (BME) musicians are largely underrepresented in classical music.
UK symphony orchestras want to improve the situation and decide to implement “blind”
auditions (where the music director and other persons involved in the hiring can not see
who the applicant is). They ask for your expert advice in the process.

a) You find that the blind auditions increase the share of BME hires from 2% to 6%.
Briefly explain why blind auditons might have helped to increase the representation of
BME musicians? What do they suggest about the hiring process?
[10 marks]

b) Can you think of other reasons for the underrepresentation of BME musicians in the
classical music industry? Can you suggest another interventions to tackle the problem?
[5 marks]

End of Paper