1. Please read the attached article about the effects of Hurricane Andrew, and answer the following questions:

(4  pts) a. What were the effects of the storm on the position of  D _L , the demand for labor curve in Florida’s construction industry? Illustrate your answer graphically.

(4 pts) b. What do you think probably happened to the demand for labor in other industries in the Florida area such as collection of garbage/debris?  What about retail clothing sales?

(4 pts) c. What were the effects of the storm on S _L , the supply of labor in Florida’s construction industry?  From (a), you can see movement along the S _L curve.  In addition, what happened to the position of  S _L as  workers from other states started to come in? Illustrate your answer graphically.

(5 pts) d. With the help of a diagram, discuss the likely effects on the equilibrium wage and employment of construction workers in Florida as both D _L and S _L shifted.

(4 pts) e.  The article refers to the efforts of the local building association to keep out workers from other states.  Draw another graph to explain the effects of keeping such workers out.

(5 pts) f.  Suppose that wages in the construction industry rose as a result of the hurricane.  Would construction workers now be "overpaid?"  How would you react to the statement that it is unfair for workers to earn higher wages because of a catastrophe, and therefore such wage increases should be prohibited?

(6 pts) g.  As a result of the storm, prices of building materials and construction equipment rose dramatically. Do you think it is fair that the suppliers of building materials and equipment should charge higher prices in the wake of the devastation caused by the hurricane?  What would be the effect of prohibiting these price increases?

(10 pts) h. Comment on how the increased prices of building materials and construction equipment (K) may affect the demand for labor (L) in the construction industry. Consider two possible cases: (a) L and K are complements in production; (b) L and K are substitutes in production.

(16 pts ) 2. Suppose that policy-makers would like to reduce the amount of "sweatshop labor" in the U.S., i.e., low-skill employees who work extremely long hours at very low wage rates.  In practice, such workers are often immigrants.  Assume that the government is considering two policy options:

a)     Taking steps to reduce the number of unskilled immigrants who enter the country, legally and illegally.

b)      Increasing the enforcement of laws that impose fines on employers who knowingly hire illegal immigrants.

Discuss the likely outcomes of each of these policies (taken separately) on the sweatshop labor market.

Hint: Draw diagrams with S _L and D _L for the relevant labor market, sweatshop labor, and consider the impact of each policy on the position of these curves.  Note that policy (b) can be thought of as similar to imposing a tax on the employers of sweatshop labor.

• Policy (a) :
  Assume the case of the reduction in the number of unskilled immigrants who enter the country. This policy would certainly decrease the supply of unskilled workers (a shift to the left).
  
  This policy would decrease the number of unskilled workers and would increase the wages, which would have the desired effect of reducing the amount of sweatshop labor.
• Policy (b) : The imposition of fines can be thought as a tax imposed to the sweatshop owners (This tax should be thought a fixed tax amount rather than a tax that depends on the wage, such as the income taxes). This would cause an increase in the effective wage, because by hiring illegal people the sweatshop owners take the risk of getting fines that would make more expensive for them to hire their workers. This would cause the demand for unskilled workers to shift to the left.

This policy will also reduce the amount of labor in sweatshops, but it also would bring worse conditions to the remaining workers from the "industry" due to the lower wages.

3.   A politician has proposed that after workers have been unemployed for a period of 12 months, employers who subsequently hire them be paid a weekly sum equal to the unemployment benefits the workers would otherwise have received.  This weekly payment would last for a period of nine months.

Analyze the effects of this program on:

( 10 pts)  a.  Workers who have been unemployed for 12 months

( 10 pts)  b.  Other workers, who are substitutes in production with the workers in part (a)

( 10 pts)  c.  Other workers, who are complements in production with the workers in

part (a)

Illustrate your answers by drawing appropriate S _L / D _L diagrams.

( 12 pts) 4.  A politician has recently suggested that we should require that employers provide health insurance to all their workers.  Who would bear the burden of such a mandate?  Explain.

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Solution: The downloadable solution consists of 14 pages, 2131 words and 8 charts.
Deliverable: Word Document