LABOUR ECONOMICS (600547), 2020/21: ASSIGNMENT 3 (worth 70% of module marks).

ANSWER THREE QUESTIONS (1200 + 1200 + 1000 WORDS) – see further detail below.

SUBMISSION DEADLINE: Monday 11th January 2021 at 4.00 pm. Early submission is allowed.

SUBMISSION INFORMATION
eSubmission is the approved method for your HUBS programme of study. You must submit your
assessed assignments using the Canvas system. Submission of a printed copy is NOT allowed. You
should submit via the Assignments menu item on the relevant module Canvas site.
Further information about eSubmission is available via the following URL (from the Canvas HUBS
UG Student Information site):
https://canvas.hull.ac.uk/courses/17334/pages/coursework
You are strongly advised to make your electronic submission well ahead of the deadline (we
suggest 3 hours) to ensure that you have time to produce the required documentation. Failure to
make effective use of the eSubmission system will not be accepted as grounds for an extension, or
mitigation.
Assignments must be submitted by the date and time stipulated. Deadlines will be strictly adhered
to. Students submitting late, and who do not have an approved coursework extension, will be
subject to penalties for late submission specified by the University. Please note that Saturday and
Sunday are treated as ‘working days’ for the purposes of the late submission policy.
Academic performance can be measured through what might be termed assessment criteria, relating
to the following broad aspects (these are adapted from elsewhere). See also next page on number
of words:
A. Displaying knowledge and understanding. Also, where appropriate, exploration of the
relevant body of knowledge.
B. Using and applying evidence, ideas, concepts, theory and other relevant information (as
appropriate), in order to undertake analysis and draw relevant reasoned conclusions.
C. The analysis, interpretation and management of data (where appropriate) – using the
relevant range of tools.
D. Clarity of communication, appropriate to the relevant audience (typically an academic,
undertaking assessment marking – unless explicitly specified as otherwise).
Achievement may then be categorised in a number of bandings, as follows (again, these are
adaptations from elsewhere):
1. Exemplary (90-100%). Such marks are appropriate where the standard achieved is the
highest that could reasonably be expected of work by students at this level.
2. Outstanding, but not exemplary (80-89%).
3. Excellent, but neither outstanding nor exemplary (70-79%).
4. Good to very good (60-69%).
5. Satisfactory (50-59%). Noticeable gaps may be evident in such work.
6. Adequate, but weak (40-49%). Limitations are likely to be more pronounced and obvious,
probably with a sense that the knowledge demonstrated by the work is incomplete.
7. Unsatisfactory (35-39%). Limitations are likely to be even more pronounced. Although
there may be some strengths displayed, they are likely to be outweighed by several weak
features.
8. Very unsatisfactory (below 35%). Strengths (if any) will be few, and heavily outweighed by
weaknesses (and/or omissions).
[see next page]

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Although marking grids are quite widely favoured, much caution should be exercised in
entertaining the belief that the mark for a piece of assessed work can be simply characterised as a
weighted average of several indicated levels of achievement, each attached to an individual
assessment criterion. In the case of achievement in an assessment, the ‘whole’ may not simply be
the sum of the parts.
The University has in place a standard system of penalties for summatively assessed work subject to
late submission. Penalties are a percentage of the maximum mark available for the assessment
element which has been submitted late. The late submission penalties applied to coursework
submitted after the published deadline are:
• Up to and including 24 hours after the deadline, a penalty of 10%
• More than 24 hours and up to and including 7 days after the deadline; either a penalty of 10% or
the mark awarded is reduced to the pass mark, whichever results in the lower mark
• More than 7 days after the deadline, a mark of zero is awarded.
Coursework assessments have a set word length (or range) as this enables students to develop their
writing skills and demonstrate that they can present their work in a clear and concise manner. It also
means that all students taking a particular coursework assessment are working towards the same
specific goal. This means that an individual student does not gain a potential advantage by handing
in over-long assignment, which contains more detailed examples. All coursework assessments
(including Dissertations) will specify a target word length (or range): this target does not include
footnotes, bibliographies, diagrams and appendices (unless clearly specified in the assessment
briefing).
The stipulation of 1200 + 1200 +1000 words (at the top of the first page) is intended as a pretty
strong indication. The intention is for 1200 words to apply to each of the two questions to which
37½% weighting is allocated; and for 1000 words to apply to the question weighted at 25%.
However, Q1 option (ii) includes a significant element of calculations. Answers to that question
should include fewer words (so that it remains broadly equivalent to the other questions) – and this
point should be firmly kept in mind when considering the guidance in the next paragraph.
An assignment submission that are more than 100 words short of the stipulated limit (standard
University of Hull definition of what is included in the official word count) is likely to have a
shortfall of the necessary depth and breadth of explanation. A submission of (say) 10% or more
above the requested length in response to a request for 1200 words, is at high risk of being seen as
being due to inefficient in its exposition, and/or inadequately focused, and/or written with
insufficient regard for the specified scope of the assignment brief – all of which should be seen as
legitimate considerations in helping to determine the allocated mark.

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 Answer THREE questions, including at least ONE from each section.
Each candidate’s best two answers will be given 37½% weight each and the
remaining one will be allocated a weight of 25%.
[Parts of a question are equally weighted, unless specified otherwise.]

SECTION A

Question 1
EITHER (Option i)
Explain, including diagrams and reference to underlying assumptions, how a labour economist
might analyse any TWO of the following three:
(a) Choice of when to retire.
(b) Number of children (for the household).
(c) Time allocation for a two-person household.
For both of your selections, illustrate and explain how the overall effect, following a decrease in the
steepness of the slope of the relevant budget constraint, can be decomposed into an income effect
and a substitution effect.

OR (Option ii)
Roy has a gross wage rate of £9.60 per hour for up to 40 hours of work per week, and a gross wage
of £14.40 per hour for up to 10 hours of overtime per week. The income tax rate is 25%. Working
more than 50 hours per week is not permitted, and we assume that a maximum of 100 hours per
week is available for work and/or leisure. Roy’s income from savings is £9 per week and his total
benefits for being out of work are £120 per week, with neither income stream subject to income tax.
(a) Show Roy’s budget constraint diagrammatically and algebraically.
(b) Let Roy’s utility function be given by U = C0.4L0.6, where C is consumption (in £), L is hours of
leisure per week and U is utility. Calculate algebraically Roy’s optimal choice of C and L, and
the optimal value of U – laying out any necessary underlying assumptions and the weaknesses
inherent in this framework.
(c) Roy is now forced into a choice between fixed contracts of 20, 40 and 50 hours – under the
same tax and benefit system. Calculate and explain his optimal choices if:
(i) Being absent will be detected with probability 1 and being discovered absent results in
instant dismissal without pay, and with total benefits for being out of work reduced to
£96 per week.
(ii) Absence is permitted, but absence hours are unpaid.
(d) Harry faces the same set of constraints as those outlined for Roy before (a) above, apart from
only being entitled to £87 per week in total benefits for being out of work. Given that Harry’s
utility function is given by U = C0.3L0.7, explain the (per week) relevance of 29 hours, 7 minutes
& 30 seconds to his optimal choices.
(e) For Harry, calculate the income and substitution effects of a 25% increase in the gross hourly
wage rate. [Hint: You may find it useful to concentrate on the situation without overtime.]

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Question 2
IZA Discussion Paper 8129 by John Pencavel (2014) found evidence that, for World War 1
munitions workers, productivity suffered when workers had long working hours per day or week –
and especially beyond 55 hours per week. Summarise the model put forward by FitzRoy et al.
(European Journal of Political Economy, 2002) and then consider how its key conclusion about the
employment effect of reducing standard working hours compares to Pencavel’s more recent finding
on output (as summarised above, and which was applied to a specific industry, about a century in
the past). Comment also on the findings of FitzRoy et al. (2002) regarding the effects of reductions
in working time on wages and profits; and explain whether the FitzRoy et al. (2002) model simply
indicates that reductions in working time serve to share out work among more individuals. Explain
whether any of the above offers insights into how policy-makers might effectively respond to the
labour market consequences of the current coronavirus crisis.

Question 3
(a) The November 2016 CIPD (Chartered Institute of Personnel and Development) survey on
absence indicated a median cost of absence to UK employers that year of £522 per worker –
more than 20% lower than 2011 (£673 per worker). Discuss, from the perspective of economic
analysis, whether the 2016 level of absenteeism was closer to optimality than both the 2011
level, and the alternative of zero absence. (25 marks)
(b) How is duration dependence relevant when considering the effects of neglected heterogeneity
on a study of absence duration that uses Maximum Likelihood Estimation? (25 marks)
(c) Explain how remuneration might be structured to deter on-the-job shirking, and why.
(50 marks)

Question 4
‘When it comes to analysing UK self-employment, gender and region are both irrelevant.’ Evaluate
this statement, with reference to appropriate studies of self-employment.

[see next page]

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 SECTION B

Question 5
‘Education is a commodity to be invested in for the sole purpose of maximising discounted lifetime
earnings.’ Critically evaluate this statement, being careful to focus on the relevant underlying
economic theory and empirical findings concerning the linkage between education and earnings
(especially through adaptations of the Mincerian earnings equation).

Question 6
(a) Describe and explain the types of product market and/or labour market where the formation of
a trade union is most likely to be successful.
(b) Explain whether, when considering the long-run demand for labour, the scale effect and
substitution effect work in opposite directions (when there is a change in the wage rate). Does
this help to explain typical findings about the typical sizes found for the long-run and short-run
elasticities of labour demand?

Question 7
(a) With reference to Farber’s 1978 paper in the American Economic Review, explain how the
incidence and duration of strikes can be explained.
(b) Explain why, in the presence of a monopoly union, a contract may be arrived at which is not on
the labour demand curve; and whether such a contract will involve the employment of an
‘excessive’ amount of labour.

Question 8
(a) Describe and explain the nature and implications of the choice between piece-rate wages and
time rates, from the perspective of both firms and workers.
(b) Explain the bonding critique of efficiency wages. Explain and illustrate the effect of efficiency
wages on involuntary unemployment and wage stickiness over the business cycle.

(end)

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