Question

Suppose Pres. Trump and the Republican Party successfully expel all 11 million undocumented residents of the United States this year. This would represent an abrupt decrease in the overall supply of labor of about 4%. Since undocumented workers are heavily concentrated in agriculture, construction and household services (like cleaning, child and elder care and lawn care) the percentage decline in the supply of labor to these industries would be in the 15% - 25% range.

28. Using a neoclassical price adjustment framework, explain what effects this would have in the most affected industries.

29. Suppose that this results in a decline in the rate of profit in the most affected industries. Using the capital adjustment mechanism, explain what is likely to happen (and why) in the most affected industries.

Questions 38 – 41 are based on the efficiency wage framework. The efficiency wage framework can be summarized with the following equation:

P = k{w/(Q/L)}

​

Where:

P

K

W

Q

= Price

= the mark-up ratio

= the wage rate per hour

= the quantity produced

L

(Q/L)

{w/(Q/L)}

= the hours of labor employed in production

= output per hour of labor (labor productivity)

= labor cost per unit of output or the “efficiency

wage rate”

30. What are the chief factors determining the size of the mark-up ratio for an industry?

31. In the wage-productivity adjustment mechanism, why might a change in the hourly wage rate cause a change in labor productivity?

32. Explain how the wage-productivity adjustment mechanism approaches and equilibrium.

33. In the wage adjustment mechanism, if wages are cut, why might output prices increase?

34. Why, according to the wage adjustment mechanism, would a profit maximizing firm willingly pay wages higher than those required by a competitive labor market?

Answer 1

28. Using a neoclassical price adjustment framework, explain what effects this would have in the most affected industries.

Neoclassical method will be based on supply and demand in setting the price of the labor ,the supply curve of the labor will shift leftward and the demand will remain as constant as was before reduction of labor supply and the wage demanded by the current supply curve would be higher.

29. Suppose that this results in a decline in the rate of profit in the most affected industries. Using the capital adjustment mechanism, explain what is likely to happen (and why) in the most affected industries.

Decrease in Labor supply will increase the labor cost and decrease the profit levels of the company,and to adjust to this phenomenon companies no longer may be profitable at current level of output due to increase costs,so the firm may decide to cut the output level to match the decreased supply of labor.

30. What are the chief factors determining the size of the mark-up ratio for an industry?

Markup ratio is the premium which the manufacturers charge for the product an increase in the markup ratio will transfer wealth to the capitalist.If the product is of high demand then industry/company will increase the markup ratio of the product.

/too many questions as by rule