MGEB06H3 Lecture Notes - Lecture 1: Efficiency Wage, Real Wages, Marginal Product

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5 Oct 2015
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MGEB06 - Chapter 6 Tutorial 1
Question 1
The economy is in its long run equilibrium. The labour force survey has found that the number
of unemployed, employed, and not in the labour force are 1500, 18500, and 5000 respectively,
and the sizes of these categories are assumed to not change. In addition, 555 of the employed
workers would lose their jobs in any given month. Based on the information given, compute the
labour force participation rate, the job finding rate, and the job separation rate for this economy.
Be sure to show your work and keep your answers to at least 2 decimal points.
Question 2
“If Janet finishes school and decides to sit around home for a few months, holding all else
constant, the results will be a fall in the labour-force participation rate and no change in the
unemployment rate.” Is this statement True, False, or Uncertain? Explain.
Note: The bulk of the grades are associated with your explanation rather than a lucky guess.
Question 3
Some labour economists argue that it is useful to think of the labour market as being divided into
two sectors: a primary sector, where “good” (high-paying, long-term) jobs are located, and a
secondary sector, which has “bad” (low-paying, short-term) jobs. Suppose that the primary
sector has a high marginal product of labour and firms pay efficiency wages. While the real
wage in the secondary sector adjusts so that the quantities of labour demanded and labour
supplied are always equal. However, it is possible for workers who cannot find jobs in the
primary sector to look for jobs in the secondary sector (but not the other way around).
With the aid of 2 labour market diagrams (one for the primary sector and one for the secondary
sector), illustrate and explain the long-run effects of a productivity improvement in the primary
sector on the real wages, employment, and output in both sectors, assuming upward-sloping
labour supply curves in both sectors?
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