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# CECN 600: Intermediate Macroeconomics II

## Question One

(a)

When a subsidy is introduced, the level of production increases when determining the surplus. An increase in consumption supports the increase in production; the worker surplus is equivalent to the labour turnover compared to individuals who enter the market searching for employment.

In the DPM model, a subsidy aims at controlling employment levels through consideration of the economy and different labour issues such as wages, labour turnover, and the ability for employees to find jobs. The surplus on the firm side changes in consumption while for the worker is the increase in turnover causing employees to continue to job search.

(b)

The Nash bargaining solution should maximize the utility of both producers (firms) and workers in the labour market. The Nash solution would occur where firm and worker utilities, the x and y variables respectively, maximize individual utilities. The implication is that with the Nash solution, both firms and workers should cooperate and determining wages for labour, ideally leading to organized and cooperative sharing of profits.

Assuming wages are w and price paid is p, the pay-off would be denoted by: p – w

A fundamental assumption in the DPM model would be zero profits for the firms given as p – w = k

Firms would cooperate with workers to determine wages based on the Nash bargain solution, based on reservations, r, and share profits to workers, B. The Nash bargain solution from the scenario would therefore be expressed as: w = r+ B[P-r].

This can be transformed as Bp+ [1-Br].

(c)

We already know that the labour market equation, which is the supply, has been expressed as p – w. The wage determination process can influence employment changes in the labour market tightness of wages. The responsiveness determines ɵ for incentives. The market side equation could be expressed as a general approach written as w = b[p Ɵ,x], where x is an inclusion of all unconsidered variables initially.

(d)

The inflation rates

In the economy

Point shift

W             E1

New unemployment levels

Unemployment rate

The market is controlled by p – w, and all other factors would lead to outside worker bargains. As shown in the graph above, the pay-off becomes lower as more workers are being hired, causing a lower job fulfillment rate.

(e)

The subsidy would translate into improved wages for workers, based on the firm profits. As wages improve, labour supply increases and the resulting market tightness will tend to reduce because employment increases; hence the ratio of employed workers to job seekers decreases (Christl et al., 2021). The employee’s real wages will improve through cooperative bargaining; they obtain a better share of profits from the firm. The unemployment rate declines, more workers are hired as firms experience better consumption.

## Question Two

(a)

F(K,N) = Y = K0.5 N0.5        , y= Y/N = (K0.5N0.5)/N = k0.5

k= K/N =>  ḱ/k = ḱ/K – Ṅ/N = ḱ/K – n

ḱ/k = ḱ/K – n = (sY – dK)/K – n

= sY/K – d – n = [sf(k)]/k – d – n

ḱ = sf(k) – (d + n)k

At steady state, ḱ = 0

sy = (d+n)k = 0

0.2k0.5 = (0.1+0.01)k

1.82 = k0.5

k* = 3.31

Income per capita, y = (3.31)0.5 = 1.82

Consumption per capita c = (1 – s)y = (1-0.2) X1.82

= 1.456

(b)

s’y – (d+n)k =

0.4k0.5 = (0.11)k

k0.5 = 3.64

k* = 13.25

y*= 3.64

c* = (1-0.4) .364 = 2.184

(c)

y1 y=sf(k)

y2 (s2+n)k

(s1+n)k

i = sf(k)

K2 k1 k

Both k* and y* declines due to rise in depreciation rate.

## Question Three

(a)

According to the Labour Force Survey Data, the COVID-19 epidemic significantly harmed working women in Canada, with female labor force participation at its lowest point in 30 years. The labor force in Canada has been substantially impacted, having thousands of Canadian workers losing their jobs or having their work hours lowered. According to the findings, the influence on year-over-year mass layoffs was continuously more significant for females than males. The hardest-hit age group in the female sector ranged between 24 to 55 years. Mothers between the ages of 24 and 55 dropped 26% of regular work time for family and health concerns in April 2020, contrasted to 14% of dads.

The lodging and catering services (+12.6%) and communication, culture, and entertainment (+9.9%) grew enormously. The growth positively impacted the female workers as female workers generally dominated these sectors. The low wages sector was critically affected. Total hours worked increased by 3.6 percent, surpassing employee hours in February 2020 (+1.7 percent) for the first time. Hourly earnings salaries climbed by 3.1% (+\$0.92) annualized (Lemieux et al., 2020). The number of people employed in the goods and services sector has grown by 44,000 for the fourth month. In eight provinces, unemployment fell, while Alberta and New Brunswick saw no change.

Considering schools were closed temporarily, mothers with and without children were affected by a lack of possibilities within the industries in which they have prior job experience, prolonged caregiving, schooling disruptions, and the emotional and physical health effects of COVID-19 are all reasons for women’s continuous unemployment.

(b)

I think the government can play a positive role in easing the burden for female workers. Policies such as broadening job prospects and providing skills to women working in hard-hit industries, especially low-wage workers, will help diversify. Establish a mixed approach of parental leave regulations, particularly personal quasi paternal leave, to encourage men to take on extra childcare duties. Also, to supplement and reinforce the government Pay Equity Act, encourage provincial wage equity and accountability initiatives.

(c)

The proposed universal childcare program will help the female workers greatly. If the government assists in the making childcare cost more available and economical, women would be able to gain employment, children’s progress and social skills would improve, and the government would earn income via more outstanding taxes (Johnston et al., 2020). This way, more women will participate in the industry, and consequently, the government will get more taxes.

## References

Christl, M., De Poli, S., Hufkens, T., Peichl, A., & Ricci, M. (2021). The cushioning effect of short-time work and discretionary policy measures: An assessment of the COVID-19 crisis in Germany (No. 02/2021). JRC Working Papers on Taxation and Structural Reforms.

Johnston, R. M., Mohammed, A., & Van Der Linden, C. (2020). Evidence of exacerbated gender inequality in child care obligations in Canada and Australia during the COVID-19 pandemic. Politics & Gender, 16(4), 1131-1141.

Lemieux, T., Milligan, K., Schirle, T., & Skuterud, M. (2020). Initial impacts of the COVID-19 pandemic on the Canadian labour market. Canadian Public Policy, 46(1), 55-65.

## By Hanna Robinson

Hanna has won numerous writing awards. She specializes in academic writing, copywriting, business plans and resumes. After graduating from the Comosun College's journalism program, she went on to work at community newspapers throughout Atlantic Canada, before embarking on her freelancing journey.