Assignment 1 - Soha Rizvi 1009091153-2

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University of Toronto *

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Economics

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Jan 9, 2024

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Part 1: Analyzing the Impact of Canada-Wide Early Learning and Child Care (CWELCC) Policy in Toronto Introduction The CWELCC seeks to lower the cost and assist more mothers in returning to the workforce. The question is whether this policy will be successful or whether adjustments are required for greater effectiveness and success. We'll examine how this strategy impacts childcare, how it's performing in short term, how it improves the functioning of the daycare market, and the pros and cons of it. Childcare Market and the government policies Childcare in Toronto is a homogeneous good, in a perfectly competitive market where providers offer similar services. Consumer choices hinge on cost, convenience, and quality. In this market, providers act as price takers, ensuring efficiency and diverse consumer options with market-driven prices. By law, childcare providers must align with the government's aim to lower childcare costs to $10 per day for children under six by 2026. Currently, rates are 52.75% lower compared to 2022. The government intervenes by compensating providers for the difference between the reduced and the 2022 rate, establishing a price ceiling. This intervention alters market dynamics, affecting the equilibrium price and supply/demand for childcare services. Effect of the Government's Policy in the short run between 1-3 years The proposal to lower childcare costs will be successful in the short term in getting more kids into childcare. The considerable drop in daily rates would encourage more parents to seek child care, especially those who were deterred by high costs. Accordingly, this rise in demand will result in higher enrollment rates for child care, which is what the government wants.

At first, the policy's price reduction might interfere with market efficiency. It may be difficult for childcare providers to maintain the same level of service while accounting for the lower rates as they adjust to the new pricing structure. However, when the market adjusts, providers could streamline their processes to allocate resources more effectively to match the pricing equilibrium. Families with little ones, especially moms, who can now easily enter or reenter the labour due to decreased childcare expenses, are the main beneficiaries of this program. As the government makes up the cost difference, childcare providers benefit as well because their financial stability is maintained throughout the transition. However, suppliers might need to make temporary adjustments to match the lower fees. It's also possible that individuals who don't directly use childcare services won't notice any benefits to them. Although the initiative addresses affordability, there are concerns about waiting lists for childcare slots. It is crucial to think of supply-side solutions to this problem, like investing in more childcare facilities and increasing capacity and staff. By doing this, the policy can be improved further, aiming for an appropriate supply-demand equilibrium and guaranteeing that all families have access to child care. Conclusion The CWELCC seeks to cut costs to have an impact on the Toronto childcare market. This is anticipated to increase childcare enrolment and have a positive effect on the workforce. The long-term advantages for growth are optimistic, however, initial changes may impair market efficiency. To improve the effectiveness of the policy, a thorough examination to deal with waiting lists and increasing capacities is necessary.

Part 2 : Wage Adjustments for BMW Employees Moving to Toronto Introduction BMW Group plans to relocate jobs from Munich to Toronto, facing the dilemma of retaining employees due to higher living costs. The proposed solution, a $500,000 monthly wage raise, needs evaluation to ensure it sufficiently addresses the cost difference. This report aims to provide a clear analysis for BMW Group's informed decision-making. Explanation of the Wage Increase The $500,000 monthly wage raise may fall short of fully offsetting the higher living costs in Toronto. The rent increase alone, moving from Munich to Toronto, is $500 which is what each employee is getting as compensation. Considering the utility function and constant assumption, we need to assess the additional income required to maintain utility in Toronto. Determining the Optimal Wage Increase To ensure BMW employees in Toronto maintain a comparable standard of living to Munich, considering the higher rent, we calculated the wage increase needed. The increased rent amounts to $500. Given that rent forms 30% of the net salary, this increase corresponds to 30% of Munich's net salary, about $1,666.67. Using our utility function reflecting employee preferences and the budget constraint, we equated the marginal utility of rent and we found that in Toronto, a net salary of approximately $2,380.95, and a wage increase of $714.29 is necessary. Conclusion Balancing BMW employees' compensation in the move from Munich to Toronto is crucial. The proposed $500,000 monthly wage increase is a positive step but may not fully cover higher living costs, particularly increased rent in Toronto. Adjustments are necessary for a seamless transition.

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