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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Beginning in the 1970s and continuing for three decades, women entered the U.S. labor force in a big way. If we assume that wages are sticky in a downward direction, but that around 1970 the demand for labor equaled the supply of labor at the current wage rate, what do you imagine happened to the wage rate, employment, and unemployment as a result of increased labor force participation?

To determine

The effect on the wage rate, employment, and unemployment as a result of increased labor force participation among women is to be determined.

Explanation

Labor force participation rate is the defined as the number of people employed and unemployed (labor force) as a percentage of total adult population (aged 16 and above) in the country. It is calculated as follows:

We are given that at the prevailing wage rate, the supply of labor equals the demand for labor. An increase in the labor force participation rate among women would result in higher supply of labor. Now, considering the effect of an increase in labor supply of labor on the labor market through the following diagram:

Here,

w0:current equilibrium wage rate

S0: Initial supply of labor curve

S1: Supply of labor curve after increase in labor force participation among women

D0

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