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Exam (elaborations) ECS2604 - Labour Economics Exam Pack (Questions & Answers from Nov2018 to Jun2021)
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Exam (elaborations) ECS2604 - Labour Economics (ECS2604)
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ECS2604 EXAM PACRalph: +27 68 077 9615
Email:theeconomistsoe@gmail.com
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,ECS2604: LABOUR ECONOMICS
JUN/JUL 2021 EXAM
SECTION A
QUESTION 1
a) Use the table below to calculate the labour absorption capacity. (4)
Year Labour force Number of employed in formal
sector
2020 90 50
2021 50 30
�������� �� ������ ����������
������ ���������� �������� = ∗ 100
�������� �� ����� �����
−20
= [ ] ∗ 100
−40
= 0.5 ∗ 100
= 50%
b) Assuming that you are a labour economist, how would you advise the SA
government. Elaborate. (6)
The unemployment income grant acts as a key intervention to combat poverty and to improve
the lives of the majority of South Africans, and therefore by increasing it to R1000 is a big
step towards alleviating poverty in South Africa by providing people with the grant, which
would assist in meeting their basic needs.
Furthermore I would advise the government to follow what EFF leader has called, as the
unemployment income grant would act as a cushion in enabling the nation's poorest
households to better meet their basic needs, stimulating equitable economic development and
promoting family and community stability.
Furthermore the government must increase the grant to reduce the impact of unemployment
which has severely resulted in a high crime rate in South Africa. However, this comes with a
,caution because in order to finance this spending, more than 90% of the funds in South Africa
come from taxes, and over exploiting the tax base will also lead to fiscal problems as well as
social unrest.
QUESTION 2
Assume the South African government decides to subsidize the wages of all women by
paying their employers R1 for every hour they worked. Illustrate graphically the effect
of the change in the wage rate in a perfectly competitive market. (10)
Until recently, industrial nations have followed the Keynesian prescription of applying
general expansionary fiscal and monetary policies as the principal means of fighting
unemployment. During the 1970s, however, faced simultaneously with soaring
unemployment and double-digit inflation, governments became disenchanted with traditional
demand management tools and began resorting increasingly to an arsenal of selective
measures related to factor use. The underlying rationale is that the latter are likely to provide
an immediate stimulus to employment, with less risk of overheating the economy. Prominent
among such measures are various fiscal incentives to the private sector, including wage
subsidies.
Until recently, industrial nations have followed the Keynesian prescription of applying
general expansionary fiscal and monetary policies as the principal means of fighting women
unemployment. During the 1970s, however, faced simultaneously with soaring women
unemployment and double-digit inflation, governments became disenchanted with traditional
demand management tools and began resorting increasingly to an arsenal of selective
measures related to factor use. The underlying rationale is that the latter are likely to provide
an immediate stimulus to employment, with less risk of overheating the economy. Prominent
among such measures are various fiscal incentives to the private sector, including wage
subsidies.
A marginal wage subsidy is ordinarily provided to employers to offset a portion of wage
payments to workers who otherwise would be unemployed; in contrast, a general wage
subsidy is paid to employers to reduce the wage bill for their entire work force. The subsidy
is either categorical—if it is limited to employers or employees with particular industrial,
regional, demographic, or other characteristics—or universal, if applied regardless of such
, characteristics. Although in the past various types of categorical subsidies were deployed to
alleviate regional or structural unemployment (or to provide income support to disadvantaged
groups), lately they have been instituted for the most part in marginal form for a limited time
period to combat cyclical unemployment.
Fig 1: the effect of the change in the wage rate in a perfectly competitive market
QUESTION 3
3.1 Assume that the South African government imposes in a minimum wage on a
perfectly competitive market. What is the implication of this? (4)
A minimum wage is a price floor imposed in the labour market, and for it to be effective, it
must be above the equilibrium wage and quantity of labour supplied and demanded. The
major reason behind a minimum wage is that every worker should be paid at a level that
enables a certain minimum standard of living to be maintained. It is also believed that a
minimum wage will push the employer to us labour more efficiently and therefore improve
productivity because of the increased wage costs.
The imposition of a minimum wage above equilibrium creates a distortion in the market and
pushes the market o a position of disequilibrium with quantity of labour demanded being
lower than the quantity and labour supplied at this higher wage. This excess supply of labour
means that the market is experiencing unemployment. As such, the imposition of a minimum
wages, especially if set at relatively high levels, is that it will interfere with the proper and
flexible operation of the market, reducing efficiencies and eventually leading to a lower
economic growth rate and higher unemployment than would otherwise have been the case.
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