UCSD ECON 139 - ECON 139 set 5

April 28, 2015Lessons 1. It doesn’t matter if the taxes are imposed on workers or employers—the impact is the same: higher labor costs, lower take-home pay and lower employment. 2. If the elasticity of labor demand is greater than the elasticity of labor supply, then the burden of the tax falls primarily on workers. (shown above) 3. If the elasticity of labor supply is greater than the elasticity of labor demand, then the burden of the tax falls primarily on firms. (not shown)Mandated Benefits • The government occasionally mandates that employers provide certain benefits to their workers. – Mandated maternity leave – Mandated health benefits • What effect do these mandated benefits have on wages and employment levels?a. Value less than costB = value to workers C = cost to firmsB<CShift down the demand curve by the exact amount of the benefit you offer them– Workers are worse off Employment goes down ECON 139 SP 15 Antonovics 5 4-28-15 1 Total compensation goes down– Firms are worse off The cost of labor goes upb. Value better than cost (normally this situation only happens when government steps in)B>C– Workers are better off Employment goes up Total compensation goes up– Firms are worse off The cost of labor goes downEg: mandated maternal benefits hurts women workers2 of 7Immigration • If immigrants and native workers are perfect substitutes, then immigration causes supply curve to shift out. • Equilibrium wage: Decreases (w0 to w1) • Employment: Increases (N0 to E1) • Employment of Natives: Falls (N0 to N1)• Suppose immigrants and native workers are not perfect substitutes (and so function as two separate inputs). • An influx of immigrants would lower the wages of immigrants. And, if immigrants and natives are gross complements, this would increase in the demand for native workers, leading their wages to rise. • Theoretical predictions about the effect of immigration on employment depend on whether immigrants and native workers are gross complements or gross substitutes.Studying the Impact of Immigration and Employment • Observe: Number of immigrants and employment rates of natives. • Need: Variation in number of immigrants. • Suggestion: Look for an association between employment rates and number of immigrants in different cities.Problem: Immigrants may choose to settle in places with high employment rates. – We want to look for the effect of immigration on employment. – But any association between employment and immigration may arise because employment effects immigration (and not visa versa).3 of 7The Mariel Boatlift (implies no impact on employment)• April, 1980: Castro declares that Cubans wishing to move to the United States could leave freely from the port of Mariel. • By September 1980: 125,000 (mostly unskilled workers) immigrate to Miami.  7 percent increase in Miami’s labor force!! • Argument: Moved to Miami because it’s close to Cuba and no other reason. • Study design: “natural experiment”Result of Study by David Card (Difference in Difference Estimation)Suggests that immigration decreased the unemployment rate of blacks by 1%.Problem with Intercity Comparisons (there will be some movement between the cities)4 of 7Trends in California’s population, 1950-1990 (Percent of U.S. Population Living in California)**Between 1970 – 1990, the population of California natives tends to stabilize while immigration goes up.  the decrease in the growth rate of native Americans immigrating to CaliforniaScatter Diagram Relating Wages and Immigration for Native Skill Groups (implies there is some impact on employment)The Effects of Immigration 5 of 7• The effect of immigration on wages is still an area of considerable debate. • We will talk more about impact of immigration on US economy as a whole in a few weeks.6 of 7April 30, 2015no notes due to midterm ECON 139 SP 15 Antonovics 5 4-30-15 77 of