Question

Consider an economy with two sectors: agricultural and services. Demand for labor in agricultural and services are described by these equations: La = 200-6Wa Ls = = 1000 - 4Ws Where Lis labor (in number of workers), W is the wage (in dollars), and the subscripts denote the sectors. The economy has 1000 workers who are willing and able to work in either sector. a. Suppose workers are free to move between sectors, and wages adjust to equilibrate labor supply and labor demand. Calculate the wage and employment in each sector. (NB: Write out only your final answer) b. Suppose a union establishes itself in the agricultural sector and pushes the agricultural wage to $25. Calculate employment in agricultural sector. (NB: Write out only your final answer) c. In the aftermath of the unionization of the agricultural sector, all workers who cannot get the highly paid union jobs move to the service sector. Calculate the wage and employment in services. (NB: Write out only your final answer) d. Now suppose that workers have a reservation wage of $15 –that is, rather than take a job at a wage below $15, they would rather wait for a $25 union job to open up. Calculate the wage and employment in each sector. What is the economy's unemployment rate? (NB: Write out only your final answer)

Answer 1

Но mone - W. Jemand? Agriculture: Laz 200 - 6 Wa Ls= 1 voor 4Wg. Total labor force = 1000 workers. a) since workers are peu therefore (Wa=we Hence total demand: La Latis. L= 200-6W + 10oo-4 w. 1 1200 - low. 1200 - 10W = 1000 =) ( wtaro Employment: Ita = 80 L's 920 At eqi 200 10w b) Now Wa= $25., Employment in agriculture sector will be La - 200 - 6(25) har so Now wape in service sector will be obtained by equating 1000-us=950 5o =4ws =) Ws = 12.5 12=950 d) At Ws = $15. 4-1000-4 (15) Ls - 940 soortot reaptsgard. So, wape in. service sector will be $15. and agriculture will be $25 Employment Agriculture ) (ta: 50 "Service is = 1000-4 (15)= 940 Unemployment rate 2 1000-(9 40+5)x100 II.