Suppose there are 100 workers in the economy, with overall labour supply LS=100. There are two sectors, the labour demand in A is given by LDA=120-2wA and labour demand in B is given by LDB=100-4wB.

Suppose there are 100 workers in the economy, with overall labour supply L^S=100. There are two sectors, the labour demand in A is given by L^D_A=120-2w_A and labour demand in B is given by L^D_B=100-4w_B.

A. If the neoclassical model of perfect competition holds, such that w_A = w and w_B = w, the formula for the total aggregate labour demand is: L^D= ________ (simplify formula before entering). Graph this aggregate demand along with the aggregate supply. The competitive wage will equal w=$ _______.

B. If sector A unionizes and sets the wage at $30, sector A will employ ________ workers so _______ workers previously employed in sector A will spill over into sector B. Sector B will now employ ______ workers. The wage in sector B will be equal to $ ________ . Union density in this economy is _______ %.

C. The relative wage gain for union workers is _______ % while the relative wage gap is _________ %. The counterfactual wage is $ _______ .

D. If the union in sector A bargains for a wage of $30 and 8 workers decide to wait in unemployment in sector A, the wage in sector B will be w_B=$ _______ .

E. If the union in sector A is able to bargain for a wage of $30 without any loss of jobs, _______ workers will spill over into sector B and the wage in sector B will be w_B=$ ________ .

Expert Solution

(A) Labour Demand= 220-6w (100-4w+120-2w), Now Labour demand=labour supply. Hence 100=220-6w, w=20

(B) 120-2*30=60 , hence sector A will employ 60 workers now, earlier this was 80. Thus 20 workers will spillover from sector A to sector B. The total workers at B=40. Hence 40=100-4w, w=15 at sector B. Union density in this economy is 60%

(C)Earlier total wage=20*80=1600, present total wage=30*60=1800, hence relative wage gain=12.5%

(D) Earlier 20 workers shifted from A to B. Now only 12 will, hence total workers at sector B=32,

32=100-4w, w=17.

(E) Without, any loss of jobs sector B's wages will remain at 20

Rahul Sunny answered 2 years ago

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Question

Suppose there are 100 workers in the economy, with overall labour supply LS=100. There are two sectors, the labour demand in A is given by LDA=120-2wA and labour demand in B is given by LDB=100-4wB.

Solutions

Expert Solution

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