Consider the following two equations to describe labor markets in various sectors of the economy $N d=\beta_{0}+\beta_{1} \frac{W}{P}+u$

$N s=\gamma 0+\gamma 1 \frac{W}{P}+v$

$N d=N s=N$
A)W/P is exogenous, n is endogenous
B)Both n and W/P are endogenous
C)n is exogenous, W/P is endogenous
D)the parameters cannot be estimated because it would require two equations to be estimated at the same time (simultaneously)

Question

Consider the following two equations to describe labor markets in various sectors of the economy $N d=\beta_{0}+\beta_{1} \frac{W}{P}+u$

$N s=\gamma 0+\gamma 1 \frac{W}{P}+v$

$N d=N s=N$
A)W/P is exogenous, n is endogenous
B)Both n and W/P are endogenous
C)n is exogenous, W/P is endogenous
D)the parameters cannot be estimated because it would require two equations to be estimated at the same time (simultaneously)

Quizplus · Accepted Answer

The equations represent a system where the demand for labor ($N d$) and the supply of labor ($N s$) are determined simultaneously by the wage rate ($W$) adjusted for price level ($P$), making both $N$ (the equilibrium level of employment) and $W/P$ (the real wage rate) endogenous.

Consider the Following Two Equations to Describe Labor Markets in Various