Jennifer is a single mother offered a job at $15/hour. She has $100 of non-labor

Question

Jennifer is a single mother offered a job at $15/hour. She has $100 of non-labor income per week (obtained via child support).

a. Jennifer’s mother watches the baby for free while she works. What is Jennifer’s total weekly income if she works 20 hours/week?

b. As Jennifer’s baby gets older (and more mobile), the baby is too much for Jennifer’s mother to take care of during the day. As a result, Jennifer must now use market childcare, costing $25/week in fixed costs (transportation costs) and $10/hour in variable costs. How many hours must Jennifer now work to obtain the same total weekly income as before when she had access to free childcare?

c. If the childcare center does not allow one to pay by the hour, but instead requires one to pay for full-time care (40 hours/week) in order to have access to any care, what will Jennifer’s income be (assuming the same fixed and per hour cost of care as in (b) if she (i) decides not to work at all and (ii) increases her labor supply to 40 hours/week?

Explanation / Answer

a. It is given that Jennifer works 20 hours and her per hour wage is $15, so the total wage would be 15*20 = $300.

She gets $100 fixed income, her total income would be = 300 + 100 = $400.

b. Assuming that because Jennifer works for 20 hours/week, she keeps her baby in the childcare for 20 hours/week.

Then, variable cost = 10*20 = $200.

Fixed cost = $25. Total expense = $25 + 200 = $225.

Her disposable income = 400 - 225 = $175.

She needs to work more, hourly wage is 15 and need to earn 225, the increased worked hour = 225/15 = 15 hours.

Total working hours = 20 + 15 = 35 hours/week.

c. For 40 hours would her = 40*10 = $400 as variable cost and $25 as fixed cost totaling to $425/week.

i. if she doesn't work at all, need would just be getting the non-labour income of $100 and would not able afford the childcare centre. For few months she can use her past savings to bear the cost.

ii. If she works for 40 hours, her total hourly wage would be = 40*15 = $600. Including the non-labour income her income would be = $600 + $100 = $700.

Expenses = $425.

Disposable income = 700 - 425 = $275.

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