Question

Explain why workers without a college degree are adversely affected by the closure of manufacturing plants around the country. Analyze this issue using the economic models (e.g., Cobb-Douglas, Leontief, etc.), market structure (e.g., perfect and imperfect competition) and papers (e.g., Acemoglu on “Technical Change, Inequality, and the Labor Market” and Wal-Mart’s monopsony, etc.) regarding the ability of companies to alter their production technologies and factor payments. In your answer, discuss how various production functions and market structure help explain the loss of jobs and reduced wages.

Answer 1

Workers without a college degree are likely to be working in various manufacturing plants across the country. In these times of global pandemic, a lot of manufacturing plants had to close down due to lockdowns imposed by the governments the world over. These are also time of economic uncertainty. These workers are adversely affected by these changes. This is so because many of these might have been contractual workers who face job losses, regular workers might face pay cuts, they will also not get any salary hikes this year. The level of production in the economy has taken a severe hit. Because of looming losses, many small manufacturing plants might even stop operations all together because they might not have the finances to weather this storm. The workers in these factories would again face job losses unless the government bails them out.

The economy is now functioning at a lower level, L1, Q1.

If there exist perfect market conditions in the industry, then there is free entry and exit for the firms. If the firms exit, they can also enter once the situation improves. This might mean positive developments for the workers are without a college degree and were working in the industry.