Can you please help me solve the first problem of Working with the Data in Chapter 4 (page 136 #1) of Macroeconomics Fifth Edition by Stephen D. Williamson? I need all the steps of how to solve the problem
1. The employment-population ratio, from the Current Population Survey, is a measure that might correspond to the concept of employment, N, in our model.
(a) Plot the employment-population ratio for the years 1980-2012.
(b) Given that the real wage in the United States was increasing from 1980 to 2012, comment on what you observe on your plot.
(c) How would you tell a story about the income and substitution effects in labor supply decisions that would be consistent with the data?
To solve this problem, here are the steps you can follow:
Step 1: Data Collection
First, you need to collect the data for the employment-population ratio for the years 1980-2012. You can find this data from the Current Population Survey or other reliable sources.
Step 2: Plotting the Employment-Population Ratio
(a) Once you have the data, plot the employment-population ratio on a graph. The x-axis should represent the years from 1980 to 2012, and the y-axis should represent the employment-population ratio.
Step 3: Analyzing the Real Wage Trend
(b) Look at the trend of the employment-population ratio on your plot. Given that the real wage in the United States was increasing from 1980 to 2012, observe the behavior of the employment-population ratio during this period. Comment on what you observe on your plot.
Step 4: Analyzing the Income and Substitution Effects
(c) Based on your observations, tell a story that explains the income and substitution effects in labor supply decisions consistent with the data. Consider the relationship between the employment-population ratio and the increase in real wage over time. Explain how individuals respond to changes in wages and how it impacts their labor supply decisions. Discuss the income effect (change in the amount of labor supplied due to changes in real income) and the substitution effect (change in the amount of labor supplied due to changes in relative prices) in relation to the employment-population ratio.
Each of these steps will require your analysis and interpretation of the data and economic theory. Remember, the purpose of this exercise is to understand the relationship between the employment-population ratio and the real wage based on the available data.