ECON 481: DR. FUESS Spring 2018, Homework Assignment #3 Based on the material you have read in the textbook and the information transmitted in class, answer the following questions. All answers must be well written – in your own words – and any diagrams must be properly labeled and explained. Any outside source(s) of information must be properly cited and referenced. You must cite all sources so that the reader could find them easily and reproduce the results. Failure to cite outside sources properly will be grounds for academic dishonesty. Failure to write in your own words will be grounds for academic dishonesty. Text must be generated via word processing and double-spaced. Anything not doublespaced will not be read and earn a grade of zero. Any handwritten text will not be read and earn a grade of zero. Diagrams may be hand-drawn or generated electronically. You may not change fonts. Assignments are due by 1:30 p.m. on the due date. Homework assignments may be submitted in class or delivered to Dr. Fuess in person in his office. Assignments must be submitted in paper format – electronic submissions will not be accepted. Assignments, or any parts thereof submitted after 1:30 p.m. on the due date will be subject to a significant and substantial late submission deduction for the entire answer set. Homework will be graded on the following basis: 75% of homework score, content of answers; 25% of homework score, writing style.
1. WILLING TO WORK? (PART 1) A retiree living on pension income typically has lower income than if s/he had kept on working. So why would anybody ever retire? And yet, many people retire from work. Use appropriate economic analysis to demonstrate and explain conditions under which it may be “a good move” to retire on pension income, even if that pension pays less than if the person had remained working. (Remember: you don’t collect pension income while working.) Be sure to illustrate how you can tell if it is a “good move.” Be sure to explain your finding(s).
2. WILLING TO WORK? (PART 2) For purposes of this question, a “nearly senior” person is someone aged 55-64 years and a “senior” person is aged 65+ years.
A. According to a 1999 BLS report on seventy-five years of labor force participation, how did labor force participation rates (LFPRs) of “nearly senior” and “senior” men change over the course of the 1950s, 1960s, 1970s, 1980s, and 1990s? How were LFPRs expected to change between 1998 and 2015? How were they expected to change between 2015 and 2025? In all cases report the relevant statistics in an easy-to-read table (or tables), and explain what the data mean. Now repeat for LFPRs of “nearly senior” and “senior” women.
B. According to an October 2017 BLS report on labor force participation, how did LFPRs of “nearly senior” and “senior” men actually change between 1996 and 2016? So has the reality of the twenty-first century met the expectations of the late twentieth century? According to the 2017 BLS report, what are LFPRs of “nearly senior” and “senior” men expected to do between 2016 and 2026? How similar are these expectations compared to the expectations of the late twentieth century? In all cases report the relevant statistics in an easy-to-read table (or tables), and explain what the data mean. Now repeat for LFPRs of “nearly senior” and “senior” women.
C. Based on your analysis above, given the expectations of the late twentieth century have LFPRs of the twenty-first century been surprising? Explain, presenting relevant statistical evidence to support your conclusion(s).
3. WORK TOO MUCH? NOT WORKING ENOUGH? Suppose an individual experiences utility from consumption C and hours of leisure λ. Consider a period of one week, that is, a period of length T = 168 hours. Suppose the price P of a unit of output is $10. Suppose a person’s particular tastes and preferences can be represented by the utility function U(C, λ) = (C – 100) x (λ – 50). Suppose the individual can command a net wage of $40 per hour. During the period suppose the individual receives non-labor income of $300. A. Graph the individual’s budget set. B. Suppose λ = 123 and the individual is on the budget line. How much is this person working per week? What “price” is this person willing to pay for an additional hour of leisure? Demonstrate and explain. C. Does this person work “too much” or “not enough”? Or does this person work the “optimal” number of hours? Demonstrate and explain.