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Labor Market Equilibrium: Wages

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Consider the attached graph.

1. At labor market equilibrium, _______ workers are hired at a wage rate of $_______ per hour, while total wages equal $_______.

2. At labor market equilibrium, how much is the payment to U.S. capital owners?

3. If Mexican migration to the United States results in the labor force increasing to 3 workers, denoted by schedule S1, what is the effect (increase? Or decrease?) on the wage rate for native U.S. workers and the payments to U.S. capital owners? Explain your reasoning.

Figure 2 represents the U.S. labor market. Assume that labor and capital are the only factors of production. Also assume the initial supply schedule of labor is denoted by So and consists entirely of native U.S. workers. The demand schedule of labor is denoted by Do.
Hourly Wage/$ (see attached)

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Question 1
This question can be answered with a simple examination of the graph. At the initial equilibrium (the intersection of S0 and D0), 2 workers are hired; and they are paid $12/hour each. So total wages are 12*2 = $24 (per hour).

Question 2
Since there is no data in the question to address this item, I'll use real world data. In order to answer this question, we need to know the share of total production that is paid as wages and the share that is "paid" as returns to capital. The sum of these shares should be 100%. In the U.S., the labor ...

Solution Summary

Total production is assessed.

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General Equilibrium in the Labour Market

Data relating to the labour market in a small economy is provided below, where the workforce is shown in thousands:

See attached

i) If the real wage is 9 euros per hour, determine the levels of employments and voluntary and involuntary unemployment
ii) assuming that the real wage is flexible, what are the equilibrium wage rate, the level of employment and the unemployment level?
iii) Now suppose that as a result of government measures to increase labour participation, the number of workers willing to work (AS) at the real wage rate of 7 euros has increased to 210,000 and that this increase, in percentage terms applies uniformly to the number of workers willing to work, at all other wage rates. Write down the labour supply with the increased participation.
iv) Now assume also that due to cost economies, firms are recruiting an extra 51000 workers at each wage rate. Determine the equilibrium rate with the increased participation and increase recruitment.

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