ECON6058 – LABOUR ECONOMICS

Coursework

● This coursework consists of five questions and is worth 20% of the overall mark for ECON6058.

● Each question carries equal weight and you should answer ALL questions.

● The deadline for submission is 16.00 BST on Thursday 05 August 2021.

● Standard University policies and procedures will be followed for late submission, extensions, and academic integrity. (See the Module Syllabus and Programme Handbook for details.)

● Your submission should consist of a five-page report (word-processed or a scan of handwritten solutions in PDF format) containing your answers AND an R script containing the code that you used to obtain your results.

– Your should submit your report via Turnitin on Blackboard in a file called report-ID.pdf, where ID is your student ID number, for example report-12345678.pdf.

– You should not include R code used in your analysis in your report, but you must submit a separate R script via Blackboard containing your code called code-ID.R, where ID is your student ID number, for example code-12345678.R.

– Please start your R script with the command set.seed(ID), where ID is your student ID number, for example set.seed(12345678).

– Your R script should include comments throughout to explain what you are doing.

– Make sure to rerun the entire R script once you have coded all subquestions to ensure your answers match when your solutions are marked.

● The page limit (five pages of A4) is strict and is easily sufficient to receive full credit. If the main body of your report is more than five pages of A4, only the first five pages will be marked.

Part I

1. The individual’s utility function has the following form:

Here C indicates the consumption good and L the leisure. The individual has non-labour income R and L0 hours that can be used to work (h) or leisure. P = 1 is the numeraire.

(a) Derive the Marshallian labour supply h^∗.

(b) Derive the Marshallian elasticity of labour supply with respect to wages ηM. (Note: this is a function of w, h and R)

(c) Assuming that w = 1, R = 8 and L0 = 24:

(d) Calculate the values of h^∗

2. Consider the paper “Labor supply response to the earned income tax credit” by Eissa and Liebman discussed in the lectures.

(a) Briefly summarise the differences-in-difference (DiD) methodology used in the paper and discuss why this technique is useful to estimate the causal impact of the policy on labour supply. In your summary, carefully state the assumptions of DiD and critically discuss whether these assumptions are satisfied in the case of the paper in question.

(b) Briefly explain if the results of the paper are consistent with the theoretical predictions.

3. Consider the individual’s utility function:

(a) Compute the Marshallian labour supply.

(b) Briefly discuss the main properties of this function.

4. Consider D. Card (1992) and Card and Krueger (1994). The two papers investigate the effects of minimum wages on employment

(a) Outline the major challenges in empirically identifying the effects of minimum wages on employment.

(b) Briefly summarise the strategies proposed in the two papers. In your summary, include a description of the different techniques, assumptions, and data used.

(c) Are the results consistent with the economic theory? Briefly explain.

Part II

5. Explore dataset Employement0809 by loading the CSV file available on Blackboard using the read.csv() command into R/RStudio.

(a) Calculate the summary statistics for the average weekly earnings (earnwke) variable for white female and black male workers.

(b) Find the 10th, 30th, 60th, 90th, and 99th percentile of the average weekly earnings.

(c) Is there a relationship between age and average weekly earnings?

(i) Compare the two variables using the R plot() function to produce a well-labelled graph.

(ii) Fit an OLS model using R to quantify the relationship between the two variables.

(iii) Can we be certain that there is statistically significant relationship at α = 0.01?

(iv) Add the model you fitted in subpart (ii) to your graph from subpart (i) and comment on what you see.