2. In the 1980s, Raleigh-Durham in North Carolina specialized in textiles, apparel, electrical products, and computers.

These industries contracted in the next two decades, partly as a result of competition from imports from China, and many of the establishments in these industries, including those located in Raleigh-Durham, went out of business.

To make this problem more concrete, suppose that there were 100,000 businesses each employing eight workers, so that total employment at the end of the 1980s was 800,000 and the annual wage per (full-time) worker was $66,000. Suppose that 2000 of these firms went out of business and stopped hiring workers and that no new businesses entered during this time period.

a. Suppose also that there are no changes in the labor demand of the remaining 98,000 businesses in Raleigh-Durham. Explain why the shutdown of the 2000 firms corresponds to a shift left of the labor demand curve. What will employment be in Raleigh-

Durham if wages did not change (remained at

$66,000 per full-time worker)?

b. Will the decline in employment lead to an increase in unemployment? Will this be voluntary or involuntary unemployment?

c. Suppose that wages actually fall to $65,000. What would you expect the employment level in Raleigh-

Durham to be? Will it be more than 784,000? Can it be more than 800,000? (Feel free to draw a diagram to answer this last part.)

d. Suppose that a quarter of total employment in Raleigh-Durham is composed of Black workers, who were overrepresented in the textile and apparel industries.

How much would you expect Black employment to decline as a result of the 2000 firms shutting down? Would Black employment fall by 4,000 or by more or less than that amount?