Consider a state, its economy is largely based on two sectors, e.g. manufacturing and services. Most of local labor forces are employed in either automobile manufacturers or traditional service industries (catering, education, retail and state employees). At state level, total employment is 1.6 million (or 1600 thousand). Demand functions for labor force in manufacturing (M) and service (S) are given as following.Demand for labor in manufacturing (thousand), with wage as Wm ($/week). M = 4000 – 3 * Wm.Demand for labor in service (thousand), with wage as Ws ($/week). S = 2000 – 2 * Ws. As above, total employed labor is 1,600 (thousand), so we have M + S = 1600 (thousand). Then finish the following questions. (1) If labor forces are free to move between manufacturing and service sectors, what relationship is between wages in manufacture and service sectors, Wm and Ws (higher, lower or the same)? And why? (2) Following the condition in (1) which adjusts to equilibrate total labor supply and total labor demand in that state. Calculate wages in the two sectors (Wm and Ws) and the employment in each sector (M and S).

Given:- Two sectors of the economy are:- 1) Manufacturing 2) services Total employment= 1600…

Answered: Consider a state, its economy is…

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter8: Economic Fluctuations, Unemployment, And Inflation

Section: Chapter Questions

Problem 3CQ

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Consider a state, its economy is largely based on two sectors, e.g. manufacturing and services. Most of local labor forces are employed in either automobile manufacturers or traditional service industries (catering, education, retail and state employees). At state level, total employment is 1.6 million (or 1600 thousand). Demand functions for labor force in manufacturing (M) and service (S) are given as following.

Demand for labor in manufacturing (thousand), with wage as W_m ($/week).

M = 4000 – 3 * W_m.

Demand for labor in service (thousand), with wage as W_s ($/week).

S = 2000 – 2 * W_s.

As above, total employed labor is 1,600 (thousand), so we have M + S = 1600 (thousand). Then finish the following questions.

(1) If labor forces are free to move between manufacturing and service sectors, what relationship is between wages in manufacture and service sectors, W_m and W_s (higher, lower or the same)? And why?

(2) Following the condition in (1) which adjusts to equilibrate total labor supply and total labor demand in that state. Calculate wages in the two sectors (W_m and W_s) and the employment in each sector (M and S).

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