PROBLEMS AND APPLICATIONS

1. The Bureau of Labor Statistics announced that in January 2006, of all adult Americans, 141,481,000 were employed, 4,209,000 were unemployed, and 78,463,000 were not in the labor force. Use this. information to calculate:

a. the adult population

b. the labor force

c. the labor-force participation rate

d. the unemployment rate

2. Go to the website of the Bureau of Labor Statistics http/:Iwww.bls.gov). What is the national unemployment rate, right now? Find the unemployment rate for the demographic group that best fits a description of you (for example, based on age, sex, and race). Is it higher or lower than the national average? Way do you think this is so?

3. As shown in Figure 3, the overall labor-force participation rate of men declined between 1970 and 1990. This overall decline reflects different patterns for different age groups, however, as shown in the following table.

4. The labor-force participation rate of women increased sharply between 1970 and 1990, as shown in Figure 3. As with men, however, there were different patterns for different age groups, as shown in this table Why do you think younger women experienced a bigger increase in labor-force participation than older women?

5. Between 2003 and 2004, total U.S. employment increased by 1.5 million workers, but the number of unemployed workers declined by only 0.6 million. How are these numbers consistent with each other? Why might one expect a reduction in the number of people counted as unemployed to be smaller than the increase in the number of people employed?

6. Are the following workers more likely to experience short-term or long-term unemployment? Explain.

a. A construction worker laid off because of  bad weather

b. A manufacturing worker who loses her job at a plant in an isolated area

c. A stagecoach-industry worker laid off because of competition from railroads

d. A short-order cook who loses his job when a new restaurant opens across the street

e. An expert welder with little formal education who loses her job when the company installs automatic welding machinery.

7. Using a diagram of the labor market, show the effect of an increase in the minimum wage on the wage paid to workers, the number of workers supplied, the number of workers demanded, and the amount of unemployment. .

8. Consider an economy with two labor markets–one for manufacturing workers and one for service workers. Suppose initially that neither is unionized.

a. If manufacturing workers formed a union, what impact on the wages and employment in manufacturing would you predict?

b. How would these changes in the manufacturing labor market affect the supply of labor in the market for service workers? What would happen to the equilibrium wage and employment in this labor market?

9. It can be shown that an industry’s demand for labor will become more elastic when the demand for the industry’s product becomes more elastic. Let’s consider the implications of this fact for the U.S. automobile industry and the United Autoworkers Union (UAW).

a. What happened to the elasticity of demand for American cars when the Japanese developed a strong auto industry? What happened to the elasticity of demand for American auto workers? Explain.

b. As the chapter explains, a union generally faces a trade-off in deciding how much to raise wages because a bigger increase is better for workers who remain employed but also results in a greater reduction in employment. How did the rise in auto imports from Japan affect the wage-employment trade-off faced by the UAW?

c. Do you think the growth of the Japanese auto industry increased or decreased the gap between the competitive wage and the wage chosen by the UAW? Explain.

10. Suppose that Congress passes a law requiring employers to provide employees some benefit (such as healthcare) that raises the cost of an employee by $4 per hour.

a. What effect does this employer mandate have on the demand for labor? (In answering this and the following questions, be quantitative when you can.)

b. If employees place a value on this benefit exactly equal to its cost, what effect does this employer mandate have on the supply of labor?

c. If the wage is free to balance supply and demand, how does this law affect the wage and the level of employment? Are employers better or worse off! Are employees better or worse off?

d. Suppose that, before the mandate, the wage in this market was $3 above the minimum wage. In this case, how does the employer mandate affect the wage, the level of employment, and the level of unemployment?

e. Now suppose that workers do not value the mandated benefit at all. How does this alternative assumption change your answers to parts (b) and (c)?