1. Some economists argue that long-term unemployment is a very important issue that policy-makers must address. The long-term unemployed become increasingly detached from the labor force and lose skills while they stay unemployment. This is costly for the economy, because these are productive workers that are effectively becoming unproductive, so the productivity of workers in the economy as a whole worsens. However, young workers usually have lower levels of skills, because they have accumulated little work experience, which is how most workers accumulate skills. As a result, young workers are not losing

many skills if they stay unemployed. Then why do we think that youth unemployment is also such an important issue?

2. One aspect we have not covered in the lectures is how the real wage depends on capital per worker. It is easy to show that the real wage increases with capital per worker (because the marginal product of labor is higher when each worker operates with more capital). Take this result as given. Assume now that population growth n decreases with the real wage. The reason why n may depend on the real wage in such a way is that women tend to participate more in the labor market when wages are higher, and as a result fertility decreases. Show how the effects of educational policies that improve educational attainment in developing countries are understated if one ignores the effects on fertility.