1.The province of Alberta is considering a policy to combat unemployment. One proposed policy is to implement a payroll subsidy of $16.36, paid directly to employers. The labor market demand is given by ED= 1,058,800 − 9,600 ⋅ w and the labor market supply is given by ES = 11,000 ⋅ w − 33,000.

a.) Calculate the initial equilibrium labor market wage and employment level, graph this equilibrium with everything fully labeled, and determine employer, worker, and total surplus. Note that the graph need not be to scale.

b.) Now calculate the “buyer” and “seller” wages and the new employment level under the policy, then graph this new equilibrium in a new fully-labeled figure, with all of the relevant “surplus areas” labeled with letters (A, B, C, and so on).

c.) Next use the areas labeled with letters to calculate the changes in employer surplus, worker surplus, and total surplus, along with government expenditures, dead weight loss, and the proportions of total surplus captured by employers and by workers due to this policy.

d.) Derive an equation for the new implicit labor market demand due to this policy.

2. Calculate the present values of your lifetime earnings over two different career paths: one where you accept an “average job” and one where you pursue your “dream job”. The parameters that need to be customized to fit each of your career paths, include:

• Starting age (enter UA) (t=0).

• Projected retirement age (R).

• An interest / discount rate (r).

• All direct schooling costs (H).

• Occupation and industry.

• Annual earnings (w) (for your completed level of schooling).

• Changes in earnings over time (due to on-the-job training).

• Work promotion / relocation.

With your calculations on 1 page, briefly explain the source of each parameter value, any assumptions being made, and why your parameters are the same or different between your career paths.

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