ECON 208 Lecture Notes - Lecture 21: Externality, Social Cost

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ECON 208- Lecture 21- Chapter 14 cntd. And Chapter 16
Unions may reduce long- run productivity through a process known as the
hold- up of capital.
Much physical capital, once installed, has a very inelastic supply, and the
union may hold up the firm by forcing it to pay higher wages
If firms are forward- looking, they would anticipate this behaviour, and might
reduce investment
Lower investment may reduce productivity growth in the industry
14.3 The “Good Jobs- Bad Jobs” Debate
In 1891, agriculture for 45% of Canadian workers, and services accounted for
only 20%. Today the numbers are 2% for agriculture and 75% for services.
One concern is that many of the “good jobs” in the manufacturing sector
appear to have been replaced by “bad jobs” in the service sector
Is the shift toward services problem?
Six Observations
1. Real income per hour worked has been rising throughout the past
century. As a nation, we are getting wealthier
2. Low- paying service- sector jobs play an important role in the
Canadian economy- especially for young workers
3. The fall in manufacturing’s employment share is partly due to that
sector’s dynamism.
4. As income grows, demand naturally switches to many services
5. It is easy to underestimate the scope for quality, quantity, and
productivity improvements in services
6. Increases in output (often from higher quality) are often not
captured by existing statistics.
A Mixed Blessing?
The transition of workers from agriculture to manufacturing and then to
services involves difficulty for the individuals involved
This suggests a role for government to maintain the income of those are
temporarily unemployed
The goal is to ease such transitions, not block them.
Chapter 16
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