Examination Paper
Examination Session:
May/June
Year:
2021
Exam Code:
ECON3081-WE01

Title: LABOUR ECONOMICS

Release Date/Time 18th May 09:30
Latest Submission Date/Time 19th May 09:30
Format of Exam Take home exam
Duration: 3 Hours
Word/Page Limit: 4500 words
Additional Material provided: None
Expected form of Submission Word Document using template provided or PDF of Handwritten
Work
Your uploaded file should be named with your Anonymous
Code and the Exam Code e.g Z0123456 ECON3081-WE01
Submission method Turnitin

Instructions to Candidates: Answer THREE questions.
ERASMUS AND EXCHANGE STUDENTS: Answer TWO
questions.
Each question and each part of a question is equally weighted
unless otherwise stated.


Page 2 of 3 ECON3081-WE01

continued
1. (a) Show how the labour demand curve for a perfectly competitive firm may be derived as a
negative relationship between the real wage rate and the level of employment. Examine
the implications of a change in the wage rate on a perfectly competitive industry rather
than an individual firm.
(30 marks)
(b) Why might the demand for labour be more responsive to an increase in the wage rate in
the long-run than in the short-run? Explain how the nature of adjustment costs may affect
the evolution of employment in response to a change in the determinants of a firm’s labour
demand.
(35 marks)
(c) Examine the implications for the demand for labour of an increase in the rental price of
capital.
(35 marks)
2. “It is unfortunate that the term “efficient contracts” is now commonly applied to all contracts
regardless of whether the contract curve is vertical or not” (Borjas, 2020). Discuss and critique
this statement.


3. Identify and critically evaluate the main phases of research into the effects of minimum wages
on employment in the years since the publication in 1995 of David Card and Alan Krueger’s
influential text Myth and Measurement: The New Economics of the Minimum Wage.


4. (a) In a hypothetical amendment to the UK Government’s budget statement on Wednesday
3rd March 2021, to deal with the effects of the COVID-19 pandemic on the Government’s
tax income, the Chancellor of the Exchequer, Rishi Sunak, decides to raise the ‘Higher’
rate of income tax for workers from 40% to 45%. Using the Static Model of Labour Supply,
critically analyse the effects of this decision on hours of work and the rate of labour force
participation in the labour market.
(65 marks)

(b) The Chancellor of the Exchequer also decides to cut the Personal Allowance from £12,500
for individuals earning below £100,000 per annum to £12,000 per annum. Critically analyse
the effects of this decision.
(35 marks)

5. Critically evaluate the view that government intervention to regulate workplace safety may have
a negative effect on the welfare of employees.


Page 3 of 3 ECON3081-WE01

END
6. (a) According to the UK Office of National Statistics, female employees earned on average
15.5% less per hour than fellow male employees in 2020. With this in mind, consider the
concept of employer discrimination as introduced by Becker (1957). Discuss the
implications of employer discrimination for the employment decisions of the firm, for the
profitability of the firm, and for the ratio of female to male wages in the labour market.
(40 marks)

(b) How can the concept of statistical discrimination help to explain gender differences in
wages in the UK and elsewhere?
(20 marks)

(c) In empirical research, Mincerian wage functions are estimated frequently. Often this is
done for males and females separately:

Male earnings function (M): ( ̑) = 0 + 1̂

Female earnings function (F): ( ̑) = 0 + 1̂
where ̂ indicates average wages and ̂ indicates average years of education. Apply the
Oaxaca decomposition to the two wage functions and identify a measure of discrimination.
Does the Oaxaca decomposition really measure discrimination? Explain. Discuss other
techniques used in the empirical literature for measuring discrimination.
(40 marks)

7. How important is an understanding of the factors that influence the duration of individual
unemployment spells for an explanation of the evolution of the aggregate rate of unemployment
in an economy? Discuss with reference to economic theory and empirical evidence.


Student Centred Learning Question

8. EITHER

(a) Can government policy address the effects of the COVID-19 pandemic on the labour market?
Discuss, with reference to economic theory and empirical evidence.

OR

(b) With reference to theory and empirical evidence, critically discuss the factors that influence
the rate of accidents amongst workers in the workplace.


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