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Problems 20-9 Structural unemployment is sometimes said to result from a mismatch between the job skills...

Problems 20-9

Structural unemployment is sometimes said to result from a mismatch between the job skills that employers want and the job skills that workers have. To explore this idea, consider an economy with two industries: auto manufacturing and aircraft manufacturing.

Assume that workers in these two industries require similar amounts of training, and they can choose which industry to train for at the beginning of their careers.

True or False: Wages in the auto manufacturing industry would be greater than those in the aircraft manufacturing industry.

True

False

Suppose that one day the economy opens itself to international trade and, as a result, starts importing autos and exporting aircraft.

This would cause the demand for labor in the auto manufacturing industry to and the demand for labor in the aircraft manufacturing industry to .

Suppose that workers in one industry cannot be quickly retrained for the other.

Which of the following accurately describes the effects of the shifts in demand on the equilibrium wages in the two industries? Check all that apply.

Wages in the auto industry would rise in the short run.

Wages in the aircraft industry would rise in the short run.

Wages between the two industries would be equal in the long run.

If for some reason wages fail to adjust to the new equilibrium levels as a result of opening up to international trade, there will be of workers in the aircraft industry and of workers in the auto industry.

Expert Solution

first part

Information given: Workers in both auto & aircraft manufacturing industries require same training, can choose either at beginning.
The given statement is FALSE, Wages in the auto manufacturing industry would not be greater than those in the aircraft manufacturing industry, the wages in both industries would be equal. This is because the fact that both industries require same trained person, suppose if the wage of auto manufacturing sector increases, then the worker of aircraft manufacturing sector would start working in auto manufacturing sector because he has the same skills required for auto manufacturing sector. Hence, the wages in both industries would be equal.

Second part

Information given:
- Importing autos
- Exporting aircraft
- Shift in demand of labour from auto manufacturing sector to aircraft manufacturing sector
- Worker of one industry can not quickly retrained for other industry
The effects of the shifts in demand on the equilibrium wages in the two industries -
- fisrt statement is incorrect: The wages in auto industry would not rise because it is importing the autos, and hence require less demand of labour.
- second statement is correct: The wages in aircraft manufacturing industry would increase for short run. Thus is because, as the export of aircraft increases, the demand for labour also increases and so the wage rate untill the auto manufacturing sector gets all required labour. Hence the wages in aircraft sector would rise in short run.
- third statement is correct: The wages of two sectors would be equal because both requires same trained labour, once both the industries gets the quantity of labour they want, then they would become adjust to equal wages.
- fourth statement is incorrect: Wages will adjust to two industries in long run because both requires same trained labour.

Rahul Sunny answered 1 year ago

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