Principles of Economics- Mankiw (5th) 395

Principles of Economics- Mankiw (5th) 395 - CHAPTER 18 T H...

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CHAPTER 18 THE MARKETS FOR THE FACTORS OF PRODUCTION 407 An episode from Israel illustrates how a shift in labor supply can alter the equilibrium in a labor market. During most of the 1980s, many thousands of Pale- stinians regularly commuted from their homes in the Israeli-occupied West Bank and Gaza Strip to jobs in Israel, primarily in the construction and agriculture industries. In 1988, however, political unrest in these occupied areas induced the Israeli government to take steps that, as a by-product, reduced this supply of workers. Curfews were imposed, work permits were checked more thoroughly, and a ban on overnight stays of Palestinians in Israel was enforced more rigor- ously. The economic impact of these steps was exactly as theory predicts: The number of Palestinians with jobs in Israel fell by half, while those who continued to work in Israel enjoyed wage increases of about 50 percent. With a reduced num- ber of Palestinian workers in Israel, the value of the marginal product of the re-
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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