Question: many college students work to pay for school expenses eg...
Many college students work to pay for school expenses, e.g., tuition, texbooks, etc. Suppose it is well known that college students who work a part-time job obtain a lower GPA than those who don’t (because they have less time for studying). Considering GPA is one of the important criteria for future employment, doing part-time work can be interpreted as an increase in current income at the cost of reduced income in the future.
1. Using our standard leisure-consumption graph, show how college students’ labor supply decisions are affected by the harm they cause to their GPA. (Hint: Think of “study time” as leisure–the time you are not working. For every hour that a student is working and hence cannot study, they bear a cost in terms of reduced future income. This is like a tax on their current earnings of $z per hour).
2. What is the effect of having to pay a $z tax on current earnings on the labor force participation rate of college students?
3. The government is considering giving a lump-sum amount to every college student regardless of how much they work. What does this reveal about whether the government believes college students should be working more or less?