Question

1)Empirical estimates of own-wage labor elasticity of labor demand vary across different groups.

Predict the kind of differences that you would expect (higher than or lower than) in the own-wage elasticity of labor demand between the following groups.

a) males and females

b) young (20-30) and older men(60+)

c) high-school graduates and college graduates

2)Young workers with little experience are generally more susceptible to company layoffs than older and more experienced workers. Can you explain this phenomenon?

Answer 1

The kind of difference that would enable us to determine which group has higher/lower own wage elasticity of lbour demand are: a) The own wage elasticity of males is lower than own wage elasticity of females. Reason: Maternity wage compensations. b) The own wage elasticity of young(20-30) is lower than own wage elasticity of older men(60+). Reason: Older men are more work experience than young ones. c) The high school graduates is higher own wage elasticity than college graduates. Reason: For employers it is more difficult to substitute capital for skilled labor (college graduates), hence the demand for college graduates changes by a lower percentage than the demand of high school graduates whenever their wages increase by the same percentage.