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Module EC3019 Labour Economics (PRD1 A 2022/23)

Coursework – Word limit: 1500 words  

Instructions:

(a) The coursework consists of answering the questions below. The word limit is 1,500 words. Indicative word limits for each task are given below. You can exceed the word limit for the individual tasks, but you must not exceed the total word limit of 1,500 words.

(b) Complete the exercises in Word. You must submit one Word document on Moodle. Do NOT leave the submission to the last minute – technical difficulties CANNOT be accepted as extenuating circumstances.

(c) Download the dataset “FinalExam.dta” from Moodle page. The dataset contains city level time-series on employment rate (empr) from 1969 to 2009. You need to use this dataset to answer question 1.b.

(d) After you finish answering question 1.b, copy the lines from your do file into the word document. The lines MUST be copied in part 1.b. I should be able to run your code when I copy/paste those lines in a do file in Stata. The words in your do file will count towards the word limit.

(e) You must do this coursework individually.

(f) Answer the questions in order. Be precise in your answers and provide all the information needed to make your answer understandable. 

(g) Everything that is not text (images, pictures, etc.) will be counted as an image. Equations directly typed into Word, will not be counted as images.

(h) You must write out your answers (no bullet points).

(i) We take plagiarism very seriously. You should cite external sources. Do not cite lecture notes. Do not copy from other students. Your submission must be original.

(j) You can use footnotes and they will count towards the word limit. I will read them.

(k) You have 2 weeks to complete the coursework.

(l) This coursework will count 50% towards your final mark.

Question 1) On December 30, 1974, the hypothetical country Alpha decided to introduce a minimum wage policy. Cities with ID numbers 11, 23, 45, 57, 60, and 61 were randomly chosen to implement this minimum wage policy. The remaining cities in country Alpha did not adopt a minimum wage policy. You are asked to empirically and theoretically evaluate the impact of the introduction of the minimum wage in country Alpha on the labour market outcomes.

(a) Assuming there is no labour mobility and using the basic model of minimum wage, how do you expect the introduction of this policy to change the existing equilibrium wage and employment rate in the affected cities? (150 words, 10 marks)

(b) You are then asked to empirically evaluate the impact of the implementation of the minimum wage policy on employment rate in cities that implemented the new legislation compared to the other cities. Use data only from 1974, and 1975 in your policy evaluation. First, write down a regression model, and then estimate the model using Stata. Interpret all the coefficients as well as the intercept in your model.  (400 words, 35 marks)

(c) Is your finding in part (b) in line with the theoretical prediction of the simple model in part (a)? Explain why your empirical findings in part (b) could be different from the theoretical prediction in part (a)? (600 words, 30 marks)

Question 2) Now suppose that there is mobility in the labour market in country Alpha and we are in the pre-minimum wage period. Country Alpha receives migrants from country Beta and these migrants are positively selected.

(a) If we believe in the Roy model, do you expect country Alpha or country Beta to have a higher income inequality? (150 words, 10 marks)

(b) Suppose country Alpha decides to adopt a welfare program to increase the minimum income of its workers. This minimum income is granted to all native workers, immigrant workers, and the new incoming immigrants. Using the Roy model, and ignoring how the program is funded, with the aid of a diagram, discuss how the welfare program changes the selection of the immigrant flow to country Alpha. (200 words, 15 marks)