Applied problem: Labor Market Mobility

Consider the market for labor. Here, note that individual workers are "suppliers" and firms "demand" labor services. Specifically, consider the market for non-college educated (non-BA) workers, as depicted below.

Basics

a)Why might the labor supply curve be upward sloping? (2pts)

b)Could the labor supply curve ever be downward sloping (i.e. "backward bending")? If so, why? (4pts)

Automation

c)Fast-food restaurants are an important source of employment for low-skill labor (they represent labor "demand" in this case).Suppose a new food processing technology allows fast-food restaurants to produce the same products with fewer workers. How might this affect the demand curve for non-BA labor? Explain the intuition and draw the new curve. (3pts)

d)How might this affect the realized wage and level of employment for these workers? Explain the intuition and label the new equilibrium. (3pts)

Education policy

e)Suppose many low-skilled workers are on the margin of deciding to work versus go to college. If a change in policy (e.g. Federal student loan expansion) leads to lower total costs of college education, how might this affect the supply curve for low-skill labor? Explain the intuition and draw the new curve. (3pts)

f)If nothing else about the market changes (from parts a and b), how might this affect the realized wage and level of employment? Explain the intuition and label the new equilibrium. (3pts)

g)Are there potential market failures in the market for college education? If so, what specific forms might they take? How does this affect your assessment of the desirability (or not) of such a policy? (3pts)

Import competition

h)Suppose that, due to massive rural-urban migration within the Chinese labor force, the cost of manufacturing tradable goods in China declines. If nothing else about the market changes (from parts a and b), how might this affect supply and/or demand for low-skilled labor in the US? Explain and be sure to list your assumptions. (3pts)

i)Show the effect on the non-BA US labor market graphically, specifically for trade exposed industries. (3pts)

j)Suppose that relocating from one industry to another involves substantial "labor market frictions". How, in your view, does the presence or absence of such frictions affect the case for or against government intervention to support trade-displaced workers? (5pts)