Factor distribution of income, p. 537 Value of the marginal product, p. 539 Valu

Question

Factor distribution of income, p. 537 Value of the marginal product, p. 539 Value of the marginal product Rental rate, p. 545 Marginal productivity theory of Time allocation, p. 555 Leisure, p. 555 Individual labor sup income distribution, p. 546 Compensating differentials, p. 549 ply curve, p. 556 curve, p. 540 PROBLEMS 1. In 2015, national income in the United States was c. Suppose that a huge wave of corporate downsizing leads many terminated employees to open their own businesses. What is the effect on the factor distribu- $15,665.3 billion. In the same year, 148.8 million work- ers were employed, at an average wage, including ben- efits, of $62,187 per worker per year. a. How much compensation of employees was paid in tion of income? d. Suppose the supply of labor rises due to an increase in the retirement age. What happens to the percent- age of national income received in the form of com- pensation of employees? the United States in 2015? b. Analyze the factor distribution of income. What per- centage of national income was received in the form of compensation to employees in 2015?

Explanation / Answer

a. National income includes a number if componenets including compensation recevied by employees, rent for land, interest on capital earned, profits earned by organizations, mixed income (which includes several other elemenst like income of self employed persons etc.)

here employees receive total of 62187 * 148.8 = 9253426 miilion

Thus $ 9253426 miilion was paid to employees as compensation.

b. Percentage of national income recived by employees as compensation =  9253426 miilion / 15665300 * 100 = 59.06%

c. When many people becom e unemployed then compensation of workers reduces and as these new unemployed started their own businesses they started earning self employed earnings which comes under mixed income. Hence this change reduces the compensation for employees and increases mixed income.

d.When retirement age increases it implies that in year 2015 those who were retiring did not retire but worked hence they get compensation rather than social security as retiremnet benefits. Compensation includes in national income but not social security. Hence the national income will rise with this effect.

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