LABOR MIGRATION and ALLOCATION 1_ Sector/country A has Labor supply La = 100, and a wage = Value of Marginal Product of Labor (P*MPL) in the demand for Labor: Wa = Pa*MPLa = 71 -0.60 *La while sector/country B has Labor supply Lb = 50, and a wage = P*MPL of Wb= Pb MPLb= 21 -0.25 *Lb Which sector/country will export and which will import labor, if both are to be improved? (To solve for the optimal allocation of Labor, substitute out Lb= 150 - La, then solve for La. Note that one country/sector may wind up with a negative labor supply. This can be interpreted as sending not just its own labor, but foreign workers entering and then going on to work in the higher-productivity country/sector. See Mexico as an example. If wage is negative, consider it inflation.) 1.a A. Country/Sector A will import, and sector B export labor. B. Country/Sector B will import, and sector A export labor. (Write in letter A, B, or C): Answer Letter = B C. It cannot be determined without more information. 1.b What is the optimal wage to Labor (P*MPL) that should be paid, and how much Labor should each sector employ? sector A should use Answer: La= Answer: Lb= sector B should use Wage w in each sector (MPL) should be Answer: w=P*MPL = (Answers should be accurate to one decimal place, after rounding; i.e., 9.19 is equivalent to 9.20): 1.c What is the change in total product of Labor for both countries? That is, calculate how much the total product of Labor has changed in both A and B since the investment/lending took place. (It will probably help to draw a picture and use some geometery.) Gain in Labor output = 1.d Let's say that in order to minimize opposition to large scale labor immigration, the labor importing sector agrees to fully compensate their original home-contry workers (at either 100 or 20 hours) for pay they would have received if there were no immigration. How much in total would they have to pay them? (Just take the units as given, with La and Lb as hours, and P*MPLa and P*MPLb in dollars. Later on we can interpret the hours in units of 100 or 1,000,000, etc.) Wages are now lowered by Original hours worked was So compensation lost = per hour hours 1.e The total product of labor in the labor-importing sector has increased enough so it can afford to compensate its original workers by this amount and still leave the rest of the sector better-off. T for True or F for False: