The aircraft manufacturing industry is the primary employer in Wichita. During t

Question

The aircraft manufacturing industry is the primary employer in Wichita. During the recession, the industry has experienced rising fuel prices and decreased revenues. While some companies remain profitable, others are experiencing severe losses. At Boeing, the largest aircraft manufacturer in Wichita, the contract with its labor union is up for renewal. The company has proposed a wage freeze for the next five years so that the company can return to profitability. The labor union has agreed to this proposal on the condition that the company guarantees that there will be no layoffs during that time.

1) Describe how the labor market would be affected in Wichita, Kansas, if the contract you read about in the scenario above were accepted by both parties.

2) Do you believe contracts such as the one described in the scenario cause unemployment? Why or why not?

Explanation / Answer

1) If both the parties go by the clause of agreement than in equilibirum there won't be any labour demanded . So in equilibirum the real wage and the labour demanded would remain constant .

2) There will be no unemployment because if both parties stick to the agreement which they there won't be any layoff and thus no change in unemployment .

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