Question

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 between the two industries would be equal.

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 fall in the short run.

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

Wages in the auto manufacturing industry would be greater than those in the aircraft manufacturing industry.

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.

Answer 1

TRUE-

Reason- If the wages were not equal, new workers would go to the industry with higher wages and the other industry will eventually have to raise the wages.

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

Reason- since the aircraft industry exports so, more labor is needed. But auto industry imports so it need not produce Domestically. So labor demand falls.

● Wages in the auto industry would fall in the short run.

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

Reason- More the demand , more the wages and vice versa.

There will be SHORTAGE of workers in the aircraft industry and SURPLUS of workers in the auto industry.

Reason- There is higher demand than demand of labor in aircraft industry so there is shortage. Similarly supply is greater than demand of labor in auto industry so there is surplus.

If it helps kindly upvote