5. Some labor economists argue that it is useful to think of the labor 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 labor and that (because effort is costly for firms to monitor) firms pay an efficiency wage. The secondary sector has a low marginal product of labor and no efficiency wage; instead, the real wage in the second ary sector adjusts so that the quantities of labor demanded and supplied are equal in that sector.

Workers are alike, and all would prefer to work in the primary sector. However, workers who can’t find jobs in the primary sector work in the secondary sector.

What are the effects of each of the following on the real wage, employment, and output in both sectors?

a the Fed has some ability to forecast recessions or ( )

b price adjustment takes longer than six months?