Question

How would each of the following impact the real wages and the number of unskilled workers on an automobile plant assembly line?

1. New technology increases worker productivity

2.Demand for the type of car made by the plant decrease

3. The eligibility age for social security falls (think about how this would affect the supply of labor)

Answer 1

1. New technology increases worker productivity: Wages have an equilibrium with their marginal product, so increases in productivity should result in increases in wages. Intuitively, more production per input should allow average variable costs to fall. The decresed cost will lead to increase in the demand of labor. Thus, both real wage and number of unskiiled workers will increase.

2.Demand for the type of car made by the plant decrease: This will lead to a fall in the demand for workers. Therefore, both, the real wage and the number of workers, will fall.

3. The eligibility age for social security falls: It implies that a person can enjoy the benefits of social security early. Thus, he/she will reduce the supply of labor. Hence, real wages will increase and the supply of workers will fall.