Question

Suppose during the first year of the new administration, several events occur:

• Wages in market X - which requires workers with the same traits and skills as workers in the clothing market – rise

• American students organize a boycott of clothing produced in foreign ‘sweat shops’.

- Briefly explain the long-term effects each will have on both wages and employment levels in the domestic clothing labor market?

Answer 1

1) Wages in Market X which requires same qualities and skills in a worker as the clothing market do have increased, this will attract more labor from the clothing market. Reducing the supply of labor in clothing market and the demand is same as before the wages in the clothing market will also rise.

And the wages increases will continue to the point where the wages in the clothing market become equal to market X. Due to the increased wages, the firm will have to lay off some of their workers to maintain their competitiveness in the market and also increase the price of their product.

2) Sweatshops is a term used to describe a poor working condition in manufacturing units. These shops are generally known for their unhygienic, dangerous, and underpaid working conditions.

America import lot of clothes from the third world countries where such sweatshops are found. Any boycott of those clothes will reduce the import of clothes and demand will increase for domestically manufactured clothes. In the short run, the firm can't do much to increase production except hiring more labor. An increased demand will increase the wages and attract more labor in the clothing sector. This will also increase the employment.

Conclusion: THe first condition will increase the wages and cause some job losses whereas the second condition will also increase the wages but that will be due to increased labor demand. This will increase employment in the long run. Overall we have to see the total tradeoff between both the condition to exactly know how much more employment the sector has added.