If during the first year of the new administration, American students organize a boycott of clothing...

If during the first year of the new administration, American students organize a boycott of clothing produced in foreign ‘sweat shops’ and Immigration of workers suitable for employment in the clothing market slows. Explain the long-term effects each will have on both wages and employment levels in the domestic clothing labor market?

Expert Solution

Well, the effect of boycotting foreign 'sweat shops' and workers, first of all will depend on the proportion of American students in the cloth market. If American students make up a huge part of this proportion then it will have significant impact on wages and employment otherwise the impact (if any) would not be very much and it wouldn't last long. The wages and employment will come back to its original levels.

Let's see how will the boycott affect wages and employment assuming these students make up a large consumer base in cloth market.

Long term effects on wages: In labour market of cloth, labor supply falls back (due to lesser immigration) but because the labour demand is still the same so wages (in real terms) should go up. Higher real wages add up to the welfare of workers in cloth market.

Note that this is assuming no role of trade unions in labor market.

Impact on employment: The long run impact on employment depends on how much the wages rise. If wages rise too much, the firms would want to employ less labor. In this case employment will be lower, because both labor demand and labor supply will interact at a lower level. However, if wages do not increase significantly the firms will have to hire more workers at these higher wages which will keep the employment at original level.

Rahul Sunny answered 1 year ago

Suppose during the first year of the new administration, several events occur: • Wages in market...

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