Structural unemployment is sometimes said to result from a mismatch between the job skills that employers...

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.

a. If workers in these two industries require similar amounts of training, and if workers at the beginning of their careers could choose which industry to train for, what would you expect to happen to the wages in these two industries? How long would this process take? Explain.

b. Suppose that one day the economy opens itself to international trade and, as a result, starts importing autos and exporting aircraft. What would happen to demand for labor in these two industries?

c. Suppose that workers in one industry cannot be quickly retrained for the other. How would these shifts in demand affect equilibrium wages both in the short run and in the long run? d. If for some reason wages fail to adjust to the new equilibrium levels, what would occur?

Expert Solution

a. If workers in auto and aircraft manufacturing industries require similar amounts of training, then workers at the beginning of their careers would choose 'Auto manufacturing industry'. This is because the automotive industry is a producer of products that is affordable to a huge and diversified market . Therefore labour skilled under this industry expands its area of being hierd in future.

Wages in aircraft industry would be higher as compared to wages in auto manufacturing industry . Aircraft training would take more time than auto manufacturing as it is more specialize training and time consuming one.

b. The demand for labour when industries are open to international trade will increase. But demand for auto manufacturing labour will increase more than the aircraft labour as auto industry is more labour intensive and goods of these industry are affordable to a huge and diversified market.

c. At equilibrium point both the demand and supply of labour is equal. price and quantity in the labor market will move toward equilibrium with an increase in wages of skilled labour .

d. If for some reason wages fail to adjust the new equilibrium point ' structural unemployment' would occur.

Rahul Sunny answered 1 year ago

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