Market clearing values of wages, Macroeconomics

On the next page is a graph of a labor market in equilibrium, with market clearing values of wages and hours of employment being W1 and E1 respectively. 

a.  The Federal government has decided to directly provide a new benefit to citizens but to fund this new program, they have decided to impose an excise tax on employers of $t per hour of hired work.  On the graph, clearly illustrate how this tax on employers will alter the market clearing values of W and E.  Also, indicate on your graph what the new hourly cost per worker that the firm pays.

b.  Suppose instead of the situation in part (a), the government mandates that the firms directly provide the new benefit.  Assume that it will still cost firms $t per hour of employment to provide the benefit.  Assume further that the workers will not value the benefit at all.  On the graph, indicate how this mandate alters the market clearing values of W and E.  After the employer mandate, what is the new hourly cost per worker that the firm pays? 

c.  Given your answers to parts (a) and (b), what is the preferred way to provide the new benefits, through the government of though the employer mandate?  Explain your answer.

d.  Continuing with the situation described in part (b), suppose that the mandate still costs the firms $t per hour but now, employees value the benefit at $t/hour.  On the graph, indicate how this mandate alters the market clearing values of W and E.  After the employer mandate, what is the new hourly cost per worker that the firm pays?  After the mandate, what do workers value the last hour of work?

e.  Given your answers to (a) and (d), what is the preferred way to deliver this benefit: through the government or through an employer mandate?  Explain your answer.

 

Posted Date: 4/2/2013 3:35:29 AM | Location : United States







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