Question

refer to the passage below and answer the question.

The Hong Kong population is ageing because of low birth rates and increased life expectancies; by 2050, there are projected to be nearly as many retired people as working adults. To mitigate social problems, in 2000, the Hong Kong government implemented the Mandatory Provident Fund, a compulsory saving scheme (or pension fund) to provide for the retirement of all workers in Hong Kong. The MPF scheme collects 10% of a person’s wage income into a savings fund that cannot be withdrawn until the person has reached 65 years of age.

3. Now suppose that the demand for labor is unit elastic, but that the supply of labor is perfectly elastic (i.e. the supply of labor is horizontal at the current wage.) P a) Suppose the 10% MPF contribution is collected from employers, How will this affect the wage rate? How will it affect the amount that employers pay in total? D How will it affect the amount that workers receive? Q b) Suppose the 10% MPF contribution is collected from workers, How will this affect the wage rate? P How will it affect the amount that employers pay? How will it affect the net amount that workers receive? D Q

Answer 1

Answer 3:

a)

If MPF contribution is collected from employer,

Wage rate will fall by the amount of MPF because supply of labor is perfectly elastic and change in wage will not affect its supply.

Total amount paid by employers will remain same as amount saved as reduction in wages is paid as MPF.

Presently workers will receive 10% less but later they will get it as pension or other retirement benefits.

b)

If MPF contribution is collected from worker,

Wage rate will remain same.

Total amount paid by employers will remain same because wages are same.

Presently workers will receive full wage but they will get net amount 10% less than before as they have to make compulsory contribution towards MPF. They will get it later as pension or other retirement benefits.