Question

1.
Many immigrants and many American high school dropouts possess very few skills. What impact will these low-skill immigrants likely have on the labor market opportunities of American high school dropouts?

	A.	Immigration of low-skilled workers is associated with higher wages paid to American high school dropouts.
	B.	Immigration of low-skilled workers is associated with greater employment among American high school dropouts.
	C.	Immigration of low-skilled workers is associated with lower wages paid to American high school dropouts.
	D.	None of the above.

2.

The taxes are inefficient because:

	A.	they decrease worker’s net wage
	B.	they increase the cost of hiring for a firm
	C.	they decrease the level of employment

3.

Under which conditions the imposition of a tax on a labor marker will NOT lead to a reduction in employment?

	A.	If labor supply is perfectly inelastic
	B.	if labor supply is unit elastic
	C.	if labor supply is more elastic than labor demand
	D.	None of the above

Answer 1

(1) (C)

American school-drop out workers, and immigrant low-skilled workers are substitutes in labor market. Therefore, as immigration of low-skilled workers increases, supply of low skilled workers increases in labor market as a result of which, wage rate falls for all existing workers (drop-out Americans as well as low-skilled immigrants).

(2) (C)

A tax lowers the effective price received by firms, so firms reduce output and demands less labor, therefore employment falls.

(3) Two options are possible: (A) and (D).

If labor supply is perfectly inelastic, the firm will be able to pass on the entire amount of tax to the workers (who are completely insensitive to a change in wage rate caused by passing on the tax burden). In that case, for the firm, cost of labor will not change and labor demand (employment) will not change.

Another possibility is if labor demand is perfectly inelastic, in which case firms are completely insensitive to the increase in wage rate caused by a tax. In that case, firms will continue to demand same labor as before, keeping employment unchanged.