Question

How would each of the following likely affect the real wage and employment of unskilled workers on an automobile plant assembly line? a. Demand for the type of car made by the plant increases. b. A sharp increase in the price of gas causes many commuters to switch to mass transit. c. Because of alternative opportunities, people become less willing to do fac- tory work. d. The plant management introduces new assembly-line methods that increase the number of cars unskilled workers can produce per hour while reducing defects. e. Robots are introduced to do most basic assembly-line tasks. f. The workers unionize.

I need correct answer. Don't copy from other answers.

Answer 1

a) When demand for the type of car made by the plant increases, they will have to employ more workers to expand production in order to meet the increasing demand. Ultimately demand for workers will increase .Now to employ more workers , wages will have to be increased. Real wage and employment will thus increase.

b) This will decrease demand for cars which will lead to fall in revenue. To earn profit, while revenue falls, plant would cut its cost by laying off workers and cutting wages. Also due to fall in Demand for workers ,workers will be readily available to take up job at lower wages .

Hence real wages and employment decreases

c) Because of alternative opportunities, reservation wage ( which is the lowest wage at which worker will be willing to accept a particular type of job , here job at plant) rises. Also workers will shift towards better alternative , hence plant may face difficulties in retaining its employees. Overall employment of workers in the economy increases in this case. But employees in the plant may fall. Wages will increase.

d) If workers can produce more within a hour, it implies that their productivity has increased. As productivity of labour increases wages increases . Employment of workers increases with increase in productivity.

e) If robots are used to substitute workers, the demand for workeds will fall, plant may layoff workers . This will decrease reservation wage of workers. Thus if robots are used , both employment and wages of workers falls.

f) When workers form unions, they gain huge bargaining power thus driving wages high. Higher wages increases cost of production , to balance which plant will have to employ fewer workers. Hence unionisation decreases employment and increases wages