Consider the market for automobile assembly line workers in the 1950s and 1960s, who were almost...

Consider the market for automobile assembly line workers in the 1950s and 1960s, who were almost entirely unionized. Describe how each of the following developments would affect employment and unemployment among these workers. Assume that the negotiated wage is above the wage that would equate the quantity of labor supplied and the quantity demanded in the market for the workers, and assume that the market for automobiles is highly competitive.

a) The building of the interstate highway system increases the demand for automobiles at a given price.

b) Better opportunities elsewhere in the economy lead some workers to leave the auto industry.

c) The installation of new production equipment increases the number of cars a set of workers can produce in a day.

Expert Solution

a) The building of the interstate highway system increases the demand for automobiles at a given price , so increase in demand cause equilibrium price and quantity to rise . Hence more workers are employed to meet the excess demand .

b) Some workers leave the auto industry , so unemployment declines in the industry . The workers who were not being able to find jobs in auto industry due to unionized wage , now get employed .

c) Improvement in technology causes per worker output to increase . So only a few workers can now make more number of cars , hence firms hire lesser workers .

Rahul Sunny answered 2 years ago

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