Economists argued that temporary labor wage differentials tend to be eroded by labor mobility. Consider the two
Question:
Economists argued that temporary labor wage differentials tend to be eroded by labor mobility. Consider the two markets for sheet-iron workers and steel-pipe workers in the same region. Suppose both markets are competitive. We begin in a situation in which both sheet-iron workers and steel-pipe workers earn $20 per hour. Assume that workers can switch easily between the two jobs. a. Draw diagrams showing the supply and demand for labor in each market. b. Now suppose there is a sharp increase in the demand for steel pipe. Explain what happens in the market for steel-pipe workers. c. If the employment of steel-pipe workers increased in part (b), explain where the extra workers came from. d. What effect does the event in part (b) have on the market for sheet-iron workers? e. What is the long-run effect of the shock on the relative wages in the two types of jobs?
Public Finance A Contemporary Application of Theory to Policy
ISBN: 978-1285173955
11th edition
Authors: David N Hyman