Question

Suppose the world price of steel falls substantially. The demand for labor among steel-producing firms in Pennsylvania will increase/decrease . The demand for labor among automobile-producing firms in Michigan, for which steel is an input, will increase/decrease . The temporary unemployment resulting from such sectoral shifts in the economy is best described as ? unemployment.

Suppose the government wants to reduce this type of unemployment. Which of the following policies would help achieve this goal? Check all that apply.

Extending the number of weeks for which unemployed workers are eligible for unemployment insurance benefits from the government

Improving a widely used job-search website so that it matches workers to job vacancies more effectively

Increasing the benefits offered to unemployed workers through the government's unemployment insurance program

Answer 1

The fall in the price of steel will reduce the profit margin of the steel-producing firms. This will compel these firms to reduce production. As these firms will reduce production, they will lay-off workers. So, their demand for labor will decrease.

Thus,

The demand for labor among steel-producing firms in Pennsylvania will decrease.

Steel is used as an input in production of automobiles. This decrease in price of steel will reduce the input cost for automobile-producing firms. This will increase their profit margin and would induce them to increase production and, thus, they will hire more workers.

Thus,

The demand for labor among automobile-producing firms in Michigan, for which steel is an input, will increase.

The temporary unemployment resulting from such sectoral shifts in the economy is best described as structural unemployment.

Following policies would help achieve this goal -

1. Improving a widely used job-search website so that it matches workers to job vacancies more effectively.