1. Suppose the inflation-unemployment relationship depicted by the Phillips Curve was stable. Do you think the U.S. trade-off and the Japanese trade-off would be identical? If not, what kinds of factors might make the trade-offs dissimilar?
2. The unemployment rate stood at 9.6 percent late in 2010. Despite the fact that the economy had been growing out of the recession for over a year (real GDP was up 3 percent by Q2 2010), there was only modest job growth during 2010. While a fiscal stimulus package provided some help, labor was "stuck in the mud." Which of the following factors contributed to the problem and which ones were important?
a. Employment and unemployment are always lagging indicators since it is difficult to hire and fire in a downturn.
b. Productivity has grown considerably this decade; people are working hard and being paid less-in short, firms are "mean and lean."
c. Construction employment, which is a traditional engine of growth in recoveries, has gone nowhere largely because of the fact that we dramatically overbuilt.
d. We have minimum wage laws in the United States.
e. Wages are sticky on the downward side, preventing the labor market from clearing.
f. The Census Bureau hired and then fired thousands of workers, throwing all the numbers off. Choose two of these statements and write a short essay. Use data to support your claims.
3. How might social, or implicit, contracts result in sticky wages? Use a labor market graph to show the effect of social contracts on wages and on unemployment if the economy enters a recession.