Question

Migration Cost

(a) The minimal hourly wage in the State of Washington is $12, while that in the State of Idaho is $7.25. Assuming a typical worker works for 8 hours a day, 22 days a month, and for 12 months, how many hours will this worker work for a year?

(b) What is his or her annual wage if he works in Liberty Lake, WA or in Post Falls, ID?

(c) Assuming that a worker works infinitely and has a discount rate of r = 5%, what is the discounted present value of his or her lifelong wage on both sides of the state line?

Answer 1

a)

We are given

A typical worker works for 8 hours a day, 22 days a month, and for 12 months,

Number of hours a typical worker works for=8 (hours/day)*22(days/month*12(month/year)

=2112 hours/year

b)

Annual wage income in Liberty Lake, WA=2112*12=$25344 per year

Annual wage income in Post falls, ID=2112*7.25=$15312 per year

C)

PV of lifelong earning in Liberty Lake, WA

=Annual wage per year/discount rate

=25344/5%=$506,880

PV of lifelong earning in Post falls, ID

=Annual wage per year/discount rate

=15312/5%=$306,240