Recall that we typically measure labor in one of two ways, along the extensive margin (employment=number of employed workers) and along the intensive margin (number of hours worked).

a) (4 points) Recall that we usually impute technology z for given measurements of Y , N, and K using Cobb-Douglas production Y = zK?N1?? (see below). Discuss why calculating technology using labor hours for N is more precise than using employment for N. Specifically, what would 2 happen to output and measured technology across the two methodologies (N as employment vs. hours worked) if, all of a sudden, the number of worked hours doubled, but employment stayed roughly constant?

b) (4 points) Even though we use the intensive margin to compute productivity, policy is typically more concerned with the extensive margin. Provide an economic reason and a political reason as to why this may be the case.

c) (4 points) As illustrated by the figure below, the employment rate e ? E/W P took much longer to recover from the Great Recession than did the unemployment rate u ? U/LF. Why would this be? (Hint: recall from class that e = l(1 ? u), where l ? LF/W P is the labor force participation.)