Question

1. Suppose that Indiana adopted a wage subsidy program in 2017 to induce teenagers to work more, under the belief that increased labor market experience as teenagers both improves later labor market prospects for the teenagers and reduces crime (i.e., teenagers who work will be less likely to engage in criminal activity). The wage subsidy increased wages for teenagers by 20% through direct payments to the teenagers. Ohio adopted no such program. You collect survey data and to find the average number of hours that teenagers want to work in both states, both before and after the subsidy was put in place.

	Indiana	Ohio
2015 & 2016	10 hours	14 hours
2017 & 2018	8 hours	11 hours

QUESTIONS	ANSWERS
a.What is the difference-in-difference estimate of the subsidy program on the number of hours worked? Why?
b.Did the income effect or the substitution effect dominate? Why?
c.What is the implied labor supply elasticity (also known as the wage elasticity of labor supply) implied by this program? Why?
d.How does this elasticity compare to the consensus estimates for men and women discussed in class?

Answer 1

(a) which subsidies which are proportional to the wages will increase the number of hours worked by the workers and it will even increase the number of workers.

This is because wage subsidies it covered only full-time workers who are employed at least 140 hours a month.

(B) the substitution effect will dominate because higher wages will induce the workers to work for more hours and give up their leisure time so that they can earn higher reward.

(C) implied labour supply elasticity or wage elasticity of labour supply means the grid of influence on the supply of labour cost by the change in the wages.

(D) if we talk about women's labour supply,it is more elastic than men's labour supply at the market level.

But at the farms level women's labour supply might be less elastic than men's labour supply. which give rise to the steeper labour supply curve for women to the firm.