Economics (Essay Sample)

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Economics
Question 1
According to the labor discipline model, there is an assumption that the best response in terms of the efforts of the workers is known by the employers. In this case, e (w, m, z) whereby, w is the given wage rate, m is the monitoring level and z is the option of the exogenous fall back.
It is worth mentioning that, at the beginning of each period, the selection and announcement by the employer is carried out. The termination probability is determined as t (e, m) e (0, 1) com t e 0. The wage rate is given as w and each hour monitoring level given by m.
The utility of the workers is given by the function u = u (w, e) whereby u n > 0 e u e < 0. In this case, the worker is able to vary e, so that the present value of the expected utility of that worker is maximized. If the time preference for the individual worker Is given at the rate of I, then the workers present utility can be determined as follows
V = u (w, e) + [1 – t (e)] v + t (e) z} 1 + 1 + I
Characteristics of the model
There is the transparency of the transactions, which means that the exchange of goods and services are easily observed.
The contract that specifies the characteristics of these complete contracts are freely enforceable without incurring any cost.
Contracts are subjected to the exogenous claim enforcement. This means that transgressions in the contracts are easily detected and redressed.
Any transaction whose terms has been disputed can be specified in such a contract in which there needs to be a mutual agreement.
Costs
There are agency problems created by this model like more costs arising from the opaqueness of the aspects of transactions that are not expressed in the contract. These results into costs that the firm has to incur given that the contract had already been entered into. These costs are implied in the contract.
The effort is expensive to measure and observe, at the management expectation level, the effort is costly to the worker although subjectively. It is worth noting also that the transgressions are not readily admissible in the courts of law, therefore, all the efforts geared towards seeking justice on the basis of transgressions all are wasted. Any costs incurred in the process are incurred by the firm.
Question 2
Given the workers’ utility u = u (a, w, e) whereby a represents the work place amenities and u a > 0
V = u (w, e) + [1 – t (e)] v + t (e) z} 1 + 1 + I
Given that utility a = 0, then u being a function a, w and e, it means then that;
a=0, w =0 and e =0. It is worth noting ,however, that work place amenity cannot be less than zero.
e is the level of effort that is being expended by the firm, it is a cost to the firm, therefore, there is a need that it is equal to zero. This ensures that the costs of the firm are minimized
Therefore, v w =o, v e =0, v a= 0
b) The profit and derivative of x are assigned the positives. Given that the costs have been determined to be at the minimum, the profit of the firm is a positive value.
c) It is possible to raise the amenities level at the place of work and not affect the employer if the worker’s efficiency and productivity can be increased in order to raise the levels of profitability to cover for the additional costs of increasing the level of worker amenity
d) Yes, given the values of a = 0, w =0 and e =0. Both make up the efficient pareto.
Question 3
This is due to the innate abilities. The innate ability of an individual who has attained a college education has a positive correlation with the earnings
It is also worth noting that the wage rate structure is not exogenous to the firms. They are critical instruments that are used to elicit efforts, for example, behavior from the workers. Therefore, labor power does not only entail the capacity to offer services and perform the labor, but it encompasses behavior, skills and other characteristic that an individual with more education can easily elicit and that are the central pillars to the human capital theory. This explains the reasons why there is a faster rise of the wages of a college educated worker than that of the high school worker.
b) 2008 and 1977 college graduates’ profile changes
In the year 1977, the earnings of male and female graduates were less compared to the year 2008. This is analyzed as below;
Group 1977199120052008Male graduates  % 9% 11% 12% 12.3Female graduates % 6% 8.2% 11% 13Men with first degree% 12% 14% 21% 21.5Female with first degree% 10% 14% 22% 23
In the year 1977 the earnings of female were lower than those of the males. This can be attributed to the fact that the female spent less time at work and more time back tending to the families as tradition demanded. The women workers worked as households and had other responsibilities like giving birth and raising the children from home. This means that the time attached to the paid labor by the women was less as compared to time spent by the males. This explains why the women received a lesser pay than their male counterparts. The women were also more conservative and would change to the circumstances in order to suit into the requirements of the jobs. Therefore, the male individual who would easily change central to the human capital theory got a higher pay.
in the year 2008, as time progressed, women became more aggressive and would now change to fit into the circumstances and requirements of the job. They would change their behavior easily as compared to their conservative nature of the year 1977. This explains why the rise in income comparable to that of their male count...