During the 2000s and 2010s unemployment in Detroit was continually higher than in the rest of the United States - for example, in 2012 the unemployment rate for Detroit was at 10.2%, vs 7.7% for United States as a whole. In 2001, China's accession to the World Trade Organization lead to a decline in United States manufacturing

a) Using the model of structural unemployment, how would you represent the "China shock"? (does it affect labor supply or labor demand in our graph of the labor market? Does it move the curve in or out?) explain

b) Starting from pre-2001 equilibrium, show the impact of China's shock on the labor equilibrium in a market without any wage rigidities. In this free market example, what do you predict will happen to Detroit's employment, population and wages?

c) What kind of frictions or rigidities could have prevented this adjustment from occuring?

d) Show graphically the impact of rigidities on wages with the assumption that the actual wage could only fall by 50% of the amount in the free market example

e) Some politicians have decided to include job retraining programs in their political platforms in order to revive the Americ rustbelt. Using the production function, state what you think the impact of these retraining programs would have on the productivity of low-skill workers. What would happen to labor demand? What would happen to unemployment in Detroit?