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How to answer (b) and (c)? Wages in Kumbekistan are set via national agreements, in spite of large within country dis- parities in economic and

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How to answer (b) and (c)?

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Wages in Kumbekistan are set via national agreements, in spite of large within country dis- parities in economic and labor market performance. In Eastern Kumbekistan labor demand is given by: Ld = 1000000 201:.) where w is the annual wage, while in Western Kumbekistan is given by Lfv = 800000 2010. Labor supply is the same in each region and there is no in- terregional mobility of the workforce L3 = 700000 + 101:}. Suppose that collective bargaining, involving mainly Eastern workers and employers, impose the wage that clears the market in Eastern Kumbekistan. (a) (1 point) What would be the employment and unemployment level in the two regions? (b) (2 points) Suppose that there is a labor supply shock, e.g., brought about by migration to the richest region, and hence labor supply in the East is now LSE = 790000 + 10m and national wage contracts are revised accordingly. What happens to employment and unemployment levels in the two regions? (2 points) Finally suppose that wage setting is decentralized and workers and firms in the West are allowed to set wages clearing the regional labor market. What would be in such case the wage differential between the two regions? And how large should be the ow of workers from the Western to the Eastern regions to bring this wage differential to zero

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