May Examination Period 2022

ECN356 Labour Economics Duration: 3 hours

Answer ALL questions

Section A carries 45 marks and Section B carries 55 marks
This examination paper MUST NOT be shared with anyone else. Doing so will be considered a
very serious assessment offence under the Queen Mary Academic Misconduct Policy.

This examination is an individual assessment and must be entirely your own work. All work will be
run through the plagiarism software, Turnitin. The software will also compare your script against all
other student submissions. Any evidence of plagiarism or collusion will be taken forward as
acacemic misconduct.

All non-mathematical questions should be typed and not handwritten unless the student has
obtained an official exemption.

Calculators are permitted in this examination.

Please ensure that your working is clearly shown with all steps of your calculation included in your
answer document, including any formula used.

When writing formulas, please note the following:

• It is acceptable to use the standard alphabet rather than greek letters. The following are
recommended: m for µ, s for s, w for w, r for r, d for D, b for b

• For mathematical operators: add +, subtract -, multiply *, and divide /

• Where appropriate, use an underscore to indicate a subscript, Eg r_f for r f

• Use the ^ character for power, eg x^2 for x 2 , x^0.5 for √x

• As an alternative to x^.5 you may type sqrt(x).

• Use brackets as necessary. To make your answer clearer use different brackets where appropriate, eg
[] {} ()

Examiner: Dr. Anna Raute

© Queen Mary, University of London, 2022

Page 2 ECN356 (2022)

SECTION A: Answer ALL questions

Question A.1

Among married non-college-educated women aged 30 – 40, average hours worked per
week is 25 and the average wage is £12 per hour. A researcher collects data and finds
that when the average wage increases to £15 per hour, average hours worked per week is
now 28 hours.
a) What is the elasticity of labour supply for this group of workers? Interpret your findings.
Can you think of reasons for the sign of the elasticity for this particular group?
[10 marks]
b) Do you assume the elasticity of single non-college-educated women aged 30 – 40 to
be similar? Briefly explain your reasoning.
[5 marks]

Question A.2

Suppose you are choosing a career path with two options: Either you study at university
before entering the labour market, or you enter the labour market directly. You only live for
two periods. If you study, you incur tuition fees of £10,000 in the first period, but earn
£100,000 in the second. If you enter the labor market directly, you earn £10,000 in the first
period and £75,000 in the second.
a) What is the discount rate that makes you monetarily indifferent between studying and
entering the labor market directly? Explain your reasoning.
[10 marks]

b) In light of the schooling model, give examples of policies that the government can use
to boost attendance in higher education.
[5 marks]
ECN356 (2022) Page 3

Question A.3

In the recent IFS Deaton Review of Inequalties, researchers at the IFS show the
correlation between the gender numerary gap and relative female labour force
participation rates across various countries (see Figure 1 below).1 The gender numeracy
gap is calculated as the relative difference of maths test scores between women and men
who do and do not participate in the labour market (Hint: A higher score in the gender
numeracy gap suggests a larger positive difference in numeracy between women in the
labour force compared to women outside the labour force, relative to the same difference
between men).
Figure 1: Talent gap and labour force participation

Note: Figure shows the gender numeracy gap, calculated as the difference-in-differences in the maths test score between
women and men who do and do not participate in the labour market. This gender numeracy gap is plotted against the country -
level women-to-men ratio in labour market participation rates (FMShareWB).

Source: Authors’ estimates using PIAAC data.

i) Summarise the pattern in Figure 1.

ii) In light of what we discussed in class, what can explain the empirical finding?
[15 marks]

1
Andrew, A., Bandiera, O., Costa-Dias, M., and Landais, C. (2021), ‘Women and Men at work,’ IFS Deaton Review of Inequalities.
Page 4 ECN356 (2022)

SECTION B: Answer ALL questions

Question B.1 Since 1982, all Alaskan residents have received a yearly universal cash
transfer (in recent years, $2,000 per person) from the Alaska Permanent Fund (sometimes
referred to as a universal income). You are tasked with evaluating the effect of the policy
on employment in Alaska. You decide to use data from the Current Population Survey for
the years 1975 to 1990 for the state of Alaska and three comparison states in the US:
Washington, Idaho, and Montana. The Current Population Survey is a repeated cross-
section covering a random sample of about 50,000 households per year. It includes,
among many other variables, an indicator variable that is equal to 1 if the respondent was
employed at the time of the survey and another indicator variable that is equal to 1 if the
respondent is part-time employed (and 0 if not employed or full-time employed):

Table 1: Employment rates

Before introduction (1980) After introduction (1990)

Alaska (treatment group) 0.65 0.66

Comparison states (control 0.62 0.63

group)

Table 2: Part-time employment rate

Before introduction (1980) After introduction (1990)

Alaska (treatment group) 0.11 0.14

Comparison states (control 0.12 0.13

group)

a) Use the data in Table 1 and Table 2 to answer the following questions:
i) What is the difference-in-difference (DID) estimate of the Alaka Permanent Fund on
labour supply for each group at both the extensive and intensive margin of labour
supply? Show your working.

ii) Interpret your findings. Briefly explain if they are consistent with economic theory.

[20 marks]

Continues on next page…

ECN356 (2022) Page 5

b) What is the key assumption one needs to make so that the difference-in-differences
estimator identifies the causal impact of the Alaska Permanent Fund? How would you
"test" the assumption in this case? What kind of data would you need to do so?
[10 marks]

c) Researchers have found that the introduction of the Alaska Permanent Fund also
incentivised migration from other US states into Alaska. Is that a problem for
identification of the causal effect of the policy? If so, how do you think this would affect
your DID estimate in a)?
[5 marks]

Question B.2

Suppose for now that schooling s is the only variable that affects earnings and that the
equations giving the weekly wages (measured in £) of white and black workers are given
by:

ww= 400+ 100 s and wb= 200 + 75 s

On average white workers have 14 years of schooling and black workers 12 years of
schooling.

a) What is the black white mean wage differential in the labour market? [5 marks]

b) Using the Oaxaca decomposition, calculate how much of this differential is due to
unobserved factors, that could be interpreted as a measure of discrimination. Briefly
explain your working.
[8 marks]

c) A friend mentions that years of schooling is not the only way in which black and white
workers differ and suggests you also account for the type of school and university
attended by black and white worker. Do you think this is a good idea in order to isolate
the impact of discrimination on wages?
[7 marks]

End of Paper