Question

In the U.S., between 1990 and 2007, capital stock and the level of technology increased dramatically. During the same period, employment and real wages rose. What do these set of events suggest?

a. The demand for labor increased by more than the increase in supply of labor over this period.
b. The demand for labor increased by less than the increase in supply of labor over this period.
c. The demand for labor decreased while the supply of labor increased over this period.
d. The demand for labor and the supply of labor decreased over this period.

Answer 1

c. The demand for labor decreased while the supply of labor increased over this period

Step-by-step explanation:

In a classical model, the production function depends on the capital stock (K) and labor (L). The production function is: Y(K,L). If the capital stock and technology increases, then firms will use more this production factor than labor. This will traduce in a decrease in the demand labor. Remember firms demand labor and workers offer it.

If real wages increase too, then more people would like to work. This will increase the total labor supply.