ECON304 - Assignment04_KEY - F10

ECON304 - Assignment04_KEY - F10 - Sonoma State University...

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Department of Economics ECONOMICS 304 Florence Bouvet Assignment 4 Answer Key 1) Firms only hire workers to the point that real wage equal marginal product of labor. Since the French law would lower the weekly hours while keeping the same pay per week, it would in effect decrease the MPL (MPL shifts down), while the firms have to pay the same wage. This will cause firms to layoff the less productive marginal workers, until the marginal product of labor rises to equal this higher new wage. In other words, firms will hire fewer workers and produce less output, so unemployment will worsen instead of improving. A better policy might be to improve worker retraining (to help adjust when facing sectoral shifts), disseminate information about job openings, or lower the level of unemployment benefits. All of these measures would lower the frictional part of the natural rate of unemployment. Other policies would be to lower the real wage or discourage unionization, which would lower the wait component of unemployment. Real wage
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This note was uploaded on 04/07/2011 for the course ECON 304 taught by Professor Eyler during the Fall '07 term at Sonoma.

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ECON304 - Assignment04_KEY - F10 - Sonoma State University...

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