Labor Economics (Econ3365)                                                                         Spring 2012                                                                                                                                         Dr. Juhn



                                               Problem Set 1 – Due February 15, 2012



1.                  (5 points) Find out civilian non-institutional population, civilian labor force, unemployment rate, labor force participation rate, and employment-population ratio for January 2012.  Use the Bureau of Labor Statistics website:

(Note: Use the seasonally adjusted numbers.)


2.                  (10 points) Use supply and demand analysis to predict the impact of the following on the labor market for oil platform workers in the Gulf of Mexico.   Discuss what will happen to equilibrium wages and employment.  Use graphs.


a.       Political instability in the Middle East pushes the price of oil to an all time high.

b.      A major explosion on an oil platform causes casualties and an oil spill that lasts for 3 months.


3.                  (15 points) Following is the equation describing Tom’s MRS between leisure and consumption:


 (MUL/MUC)  =  C/L


There are 168 hours in the week available to split between work and leisure.  Tom earns $10 per hour.  He also receives $120 worth of disability benefits each week regardless of how much he works.  The price of consumption is equal to $1.


a. (5 points) Graph Tom’s budget line. (Put L = hours of leisure per week on the horizontal axis and C = dollars of consumption on the vertical axis).


b. (5 points) Assuming that Tom works positive hours, find Tom’s optimal amount of consumption and leisure hours.


c. (5 points) Suppose Tom’s wage increased to $20 per hour.  Solve for Tom’s optimal amount of consumption and leisure hours with the wage increase.


In this case the ________ effect dominated the ________ effect.  (Fill in the blank spaces with either “income” or “substitution.”)