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IRE 1126H1S – 2019

Labour Market Economics

Final Exam

PART A (Answer Question 1).

1.          “In January the Law Students Society of Ontario released a report titled “Just or Bust” which surveyed law students on tuition, debt and financial aid… Several students indicated that rising law school tuition is causing an access to justice issue… diversity also takes a hit and this can lead to clients not having access to lawyers from their own communities… In Toronto, the University of Toronto law school charges about $36,700 for tuition each year… but also offers financial aid in the form or bursaries, scholarships and other awards. At UofT, 51 per cent of law students were eligible for financial aid in 2017-18, said the assistant dean of the of the law school. (Toronto Star, Mar 11, 2019, p. A5).

(i) Briefly explain and compare the human capital model and the signalling model of university education. Outline the methodological issues in measuring the rate of return to university education and briefly review the evidence on the economic value of a degree.   

(ii) Review the evidence on the impact on accessibility of the rapid rise in fees at the University of Toronto Law School (particularly Neuman, 2003), and in light of this evidence, comment on the statement that “rising law school tuition is causing an access to justice issue… diversity also takes a hit.”

PART B (Answer two of the three questions in this Part).

2.  In December 2018, the Government of Canada passed Bill C-86, which sets out substantial changes that will affect federally-regulated workplaces under the Canada Labour Code. The Equal Pay provision, which takes effect September 2019, specifies that no employee (including part-time, casual, contract or seasonal) may be paid less than what is paid to full-time employees who perform the same job. The rule will apply unless there are objective reasons to justify a differential wage rate such as seniority or merit.

(i)  Using a discriminating monopsony model diagram, explain why a profit-maximizing employer might pay part-time employees a lower wage than full-time employees, even though they are equally productive. Indicate any assumptions you are making in the analysis and carefully explain the meaning of “monopsony power” in the labour market. In the context of this model, explain the predicted impact on part-time and full-time employment and wages of amending the Canada Labour Code to require equal pay for equal work for part-timers and full-timers.

(ii) Explain the concept of statistical discrimination. Give two examples of statistical discrimination by gender and discuss why you feel statistical discrimination is, or is not, “fair”?  Comment on the relevance of statistical discrimination for the issue of the wage gender gap.

3.       “The Conservative Government’s ‘Ontario Open for Business Act’ will claw back planned increases in the minimum wage contained in the former Liberal government’s ‘Fair Workplaces, Better Jobs Act,’ passed late last year. Labour Minister Laurie Scott made it clear that the minimum wage would not rise from $14 an hour to $15 in January 2019, as it was set to do under the Liberal’s legislation. But the new law goes a bit farther than just cancelling the scheduled increase – it actually freezes the minimum wage at $14 until October 2020 [almost three years from when the $14 per hour minimum took effect in January 2018]…A higher minimum wage did not destroy jobs overall. In fact, Ontario’s unemployment rate hit an 18-year low in July, dipping to 5.4 per cent six months after the last increase. At the same time, higher minimum wages have contributed significantly to narrowing the wage gap. That’s a huge social benefit.” (Toronto Star, Oct 25, 2018, p. A16)

(i) Describe how the Ontario government’s policy on the minimum wage has changed over the period from 1995 to 2019 and outline the changes in the nominal minimum wage over that period. Assess the claim that “higher minimum wages have contributed significantly to narrowing the wage gap” over that period.

(ii) Explain the difference between an employer that is a wage-taker in the labour market and an employer with some degree of monopsony power. Discuss the predicted employment effects of the introduction of a minimum wage in a competitive labour market model and a monopsony model, using diagrams where appropriate.  Briefly review the empirical evidence on the employment effects of minimum wage increases and, in light of your theoretical analysis and your review of the evidence, discuss the assertion that the “minimum wage did not destroy jobs overall.”  

4. (i)  Explain the determinants of the elasticity of the long-run demand for labour (as specified by Marshall and Hicks). Using these determinants, discuss whether the demand for labour is predicted to be more inelastic in the public sector or the private sector. What does the empirical evidence suggest concerning the magnitude of the elasticity of demand for labour in the public and private sectors? Outline the implications of the elasticity of demand for labour for union power in the public and private sectors.  Does the evidence indicate a higher union-nonunion wage differential in the public or private sector?

 (ii) Outline the methodological issues in measuring the earnings gap between public sector and private sector employees (particularly separating the gap into a part due to differences in productive attributes and a part that is a pure public sector premium). Include a discussion of the difference between the intercept shift dummy method and the Oaxaca decomposition method, using diagrams where appropriate to clarify your explanation. Review the Canadian empirical evidence on this issue.