Explain what would be the cross-wage elasticity

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Reference no: EM1361827

(a) One 1980s-era estimate of the effects of a youth subminimum wage on adult employment is that for every 100 teenagers employed, between 11 and 33 adult workers would be displaced.

(i) According to this finding, are adult and teenage workers gross complements or gross substitutes?

(ii) Would the cross-wage elasticity between teenagers and adults have a positive or negative sign? Explain.

(b)Suppose the price of capital increases relative to the wage rate and, as a result, the demand for labor falls.

(i) Are these inputs gross substitutes or gross complements?

(ii) What can you infer about the relative strengths of the output and substitution effects?

Reference no: EM1361827

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