Labor Economics
8th Edition
ISBN: 9781260484434
Author: George Borjas
Publisher: Mcgraw-hill Higher Education (us)
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Question
Chapter 8, Problem 1RQ
To determine
Determine how the workers who wish to maximize the present value of lifetime earnings calculate the net gains to migration.
Expert Solution & Answer
Explanation of Solution
According to the trend, employees calculate the value of employment opportunities available in the each of the alternative destinations and subtract the cost of moving from the origin to the destination. They then determine which option maximizes the
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Consider the simple discrete job search model that we studied in class. Only the
unemployed can receive one offer per period from F(w) that is a uniform distribution on
[0,2]. There is a constant probability of being laid off at the end of each period while
employed. Assume that she can get a new offer right away when laid off. We want to
understand the reservation wage, WR, in this model. Assume that u(c) = c. The
parameters are a discount factor ẞ and an unemployment benefit b.R and show that T is contraction on [0, ∞). Explicitly state
any additional assumptions that you may need.(Grading guide line: 5pt for the
exact form of T, 10pt for showing contraction, and 5pt for stating correct
assumptions.)<
(b) Discuss why (a) is useful to understand the reservation wage wд in this
economy.<
(c) We write WR = WR (b,ẞ,λ) to reveal its dependence on (b,ẞ,λ). Show that 0 ≤
aWR
дь
OWR
дл
≤1 and ≥0. What about ?
awR
ав
State any additional assumptions that you may need.<
(d) Briefly explain the…
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