Instructions: Please make sure your writing and graphs are legible and all graphs are labelled for full marks. Please remember to submit as one pdf file on D2L. Good luck!
Q.1 Consider the DMP model. Low unemployment is a commonly pursued goal of governments. A subsidy, s, given to firms to encourage more hiring is a policy option that can be implemented with the intended goal of increasing employment and reducing the unemployment rate. (17 marks)
a) What is the firm’s surplus, consumer/worker surplus and total surplus with the introduction of a subsidy? (3 marks)
b) Using Nash Bargaining what is the real wage solution? (2 marks)
c) Determine the equation that determines the supply side of the market V(Q) and the demand side of the market, em(1/j,1). (4 marks)
d) Solve for equilibrium and show it graphically. (4 marks)
e) What is the impact of the subsidy (s) on labour supply (Q) and labour market tightness (j), the real wage (w) and the unemployment rate (u)? (4 marks)
Q.2 Consider the Solow growth model. Suppose that with d=0.1, s=0.2, n=0.01, and z=1 and take a period to be one year. (15 marks)
a. Determine capital per worker, income per capita, and consumption per capita in the steady state. Show the theoretical derivation and numerical solution. (7 marks)
b. Now suppose that the economy is initially in the steady state that you calculated in part a, and savings increases to s=0.4. Determine capital per worker, income per capita, and consumption per capita in the new steady state. (4 marks)
c. Suppose that the depreciation rate d increases, what is the effect of this change on the quantity of capital per worker and output per worker from the steady state in a?
(4 marks)
Q3. The COVID-19 pandemic has impacted the labour market outcomes of female workers disproportionately. (18 marks)
a) Discuss the labour market impact for Canadian women along these dimensions from March 2020 to February 2022 using Labour Force Survey Data:
• Age
• Industry
• Wages
• Mothers with and without children
• Visible minorities
• Education
(10 marks)
b) Do you think there is a role for government intervention to ease the burden on female workers, if so, what policies do you suggest the government to undertake? (4 marks)
c) The Canadian government has proposed a universal childcare program with the aim to offer childcare services for $10 a day, similar to the childcare model in Quebec. Discuss how you think this will impact labour market outcomes for women with children, particularly participation rates.