Question

5.) The 1986 Immigration Reform and Control Act made it illegal for employers in the U.S. to knowingly hire illegal aliens. The legislation has not reduced the flow of illegal aliens in to the country. As a result, it has been proposed that the penalties against employers who break the law be increased substantially. Suppose that illegal aliens, who tend to be less-skilled workers, are complements with native workers. Show on a graph and explain what will happen to the wages of native workers if the penalties for hiring illegal aliens increase.

6.) Suppose that all persons feel the same about working in a job that offers a polluted work environment. In particular, the utility function for all workers is given by:

U=w -2x
where w is the wage rate offered by the job and x is the fraction of the firm’s air that is composed of toxic

pollutants. There are only two types of jobs in the economy, clean jobs (x = 0) and dirty jobs (x = 1). Let w0 be the wage paid by the clean job and w1 be the wage paid by the polluted job. If the clean job pays $16 per hour, what is the wage in the dirty job? What is the compensating wage differential?

Answer 1

(5) graph and explanation of what will happen to the wages of native workers if the penalties for hiring illegal aliens increase is:

explanation:

An increase in the penalty for hiring illegal aliens will force firms to cut down their hiring of such aliens. As a result, employment of illegal aliens will fall.  Being complementary goods, a fall in the employment of illegal aliens will also reduce the demand for native workers since both of them are employed in unison. As a result demand curve of the native aliens market will fall and shift parallel to the left. This will lead to a fall in wage rates along with employment of native workers.

ie

If penalty for hiring illegal aliens increase, demand for illegal aliens will decrease. Since illegal aliens and native workers are complementary inputs to production, lower demand for illegal aliens will reduce the demand for native works as well, shifting the demand curve for native workers leftward, lowering the wage rate for native workers.

In following graph,

wage rate and quantity of native workers demanded are measured vertically and horizontally respectively. D0 & S0 are initial demand and supply curves for native workers, intersecting at point A with initial wage rate for native workers w0 and quantity of native workers hired L0. As demand falls, D0 shifts leftward to D1, intersecting S0 at point B with lower wage rate w0 and lower quantity of native workers L1.

(6) If the clean job pays $16 per hour, the wage in the dirty job and the compensating wage differential is:

given

U = sqrt(w) - 2x

the wage for polluting job must be higher than $16 per hour, and with the given information it is not possible to calculate the wage payment to the pollution job workers