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Consider an Akerlof
Model in which workers’ individualproductivities θ are uniformly distributed on [0, 120].
Each worker privately knows her own
θ and has an opportunity cost θ/3 of working. Firmsare risk neutral and have additive technologies.
1 find the equilibrium wage.
2 suppose now that firms haveto pay an employers’ National Insurance contribution to the government equal toa fraction τ=1/3 of the new equilibrium wage for each worker employed. Find thenew equilibrium.
3 what would happen in thelabour market. If the government were to raise τ from 1/3 to 2/3.
4
what is the maximum that the government canlevy without the labour collapsing?
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