Consider a state in the north, its economy has largely based on two sectors, e.g. manufacturing and services. Most of lo
Posted: Sun Jul 03, 2022 6:50 am
Consider a state in the north, its economy has largely based ontwo sectors, e.g. manufacturing and services. Most of local laborforces are employed in either automobile manufacturers ortraditional service industries (catering, education, retail andstate employees). At state level, total employment is 2 million (or2000 thousand). Demand functions for labor force in manufacturing(M) and service (S) are given as following. • Demand for labor inmanufacturing (thousand), with wage as Wm ($/week). M = 4000 – 3 *Wm. • Demand for labor in service (thousand), with wage as Ws($/week). S = 2000 – 2 * Ws. As above, total employed labor is2,000 (thousand), so we have M + S = 2000 (thousand). Then finishthe following questions. (1) If labor forces are free to movebetween manufacturing and service sectors, what relationship willbe between Wm and Ws? (higher, lower or the same) Suppose theequilibrium condition in holds and wages adjust to equilibratelabor supply and labor demand. Calculate the wage and employment ineach sector (Wm, Ws, M and S). (2) Suppose in manufacturing sector,a considerable portion of labor force is unionized. After laborunions in manufacture raised wage to $1,000 per week. Then whatwould happen to wage and total employment in service sector (laborforce is free to move across two sectors).