Reconciling Stable Unemployment with Rising Inequality
An economist observes that over the last decade, a country has seen a significant rise in freelance and contract-based work, alongside increased market concentration in major industries. Surprisingly, the national unemployment rate has remained stable, while measures of income inequality have steadily increased. Using the wage-setting and price-setting framework, analyze how it is possible for stable unemployment and rising inequality to occur simultaneously under these conditions. In your answer, break down the distinct effects of each trend on the model's curves and the resulting equilibrium.
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Economics
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Introduction to Macroeconomics Course
Ch.2 Unemployment, wages, and inequality: Supply-side policies and institutions - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
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Analysis in Bloom's Taxonomy
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Figure 2.25: Lorenz Curves for Initial and New Equilibria
Analyzing Modern Labor Market Dynamics
A national economy sees a significant expansion of the 'gig economy,' where workers are often classified as independent contractors. This trend is associated with a decrease in workers' collective bargaining power and an increase in the market power of the platforms that hire them. According to the wage-setting (WS) and price-setting (PS) model, what is the most likely combined outcome of these changes on the labor market equilibrium?
Evaluating Labor Market Trends and Inequality
Within the wage-setting and price-setting framework, a simultaneous increase in firms' market power and a decline in workers' collective bargaining power—trends often associated with the growth of a 'gig economy'—will necessarily result in a higher equilibrium rate of unemployment.
Deconstructing Labor Market Shifts and Inequality
Match each labor market trend to its specific consequence within the wage-setting (WS) and price-setting (PS) framework.
A national economy experiences a rapid expansion of its 'gig economy,' characterized by a decline in workers' collective bargaining power and an increase in firms' market power. According to the wage-setting and price-setting framework, arrange the following events in the logical sequence that describes the impact on the labor market and income distribution.
A government, observing rising inequality alongside the growth of the 'gig economy,' enacts a policy that significantly enhances the collective bargaining power of gig workers. Assuming no other changes, which statement best evaluates the most likely outcome within the wage-setting (WS) and price-setting (PS) framework?
Reconciling Stable Unemployment with Rising Inequality
In the wage-setting and price-setting framework, when increased corporate market power and a weaker worker bargaining position (trends associated with the gig economy) occur simultaneously, the factor that most directly explains the resulting increase in income inequality is the higher ____.
Effect of the Gig Economy on the Wage-Setting Curve