4. Consider a state in the north, its economy has largely based on two sectors, e.g. manufacturing and services. Most of

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4 Consider A State In The North Its Economy Has Largely Based On Two Sectors E G Manufacturing And Services Most Of 1 (84.92 KiB) Viewed 17 times

4. Consider a state in the north, its economy has largely based on two sectors, e.g. manufacturing and services. Most of local labor forces are employed in either automobile manufacturers or traditional service industries (catering, education, retail and state employees). At state level, total employment is 2 million (or 2000 thousand). Demand functions for labor force in manufacturing (M) and service (S) are given as following. • Demand for labor in manufacturing (thousand), with wage as Wm (S/week). M 4000-3* Wm. ● Demand for labor in service (thousand), with wage as W. ($/week). S 2000-2* W₁. - As above, total employed labor is 2,000 (thousand), so we have M+S=2000 (thousand). Then finish the following questions. (1) If labor forces are free to move between manufacturing and service sectors, what relationship will be between Wm and W₁? (higher, lower or the same) Suppose the equilibrium condition in holds and wages adjust to equilibrate labor supply and labor demand. Calculate the wage and employment in each sector (Wm, Ws, M and S). (2) Suppose in manufacturing sector, a considerable portion of labor force is unionized. After labor unions in manufacture raised wage to $1,000 per week. Then what would happen to wage and total employment in service sector (labor force is free to move across two sectors).