Question

The labor market

What is the main reason behind the increase in the employment-population ratio?

Define the rate of unemployment, give an equation for it. What conditions must hold to consider that a person is unemployed?

Define the concept of job destruction.

In the following cases where wages are perfectly flexible explain graphically and with intuition what will happen in the labor market:

1) It turns out that the technological boom from Silicon Valley has led firms such as Apple, Google, and Facebook to look for more workers in the east coast, by opening new locations at New York City.

2) Now the government creates a rule where all firms will have to let women with children to work from home.

3) The government reduces taxes for the creation of small business and at the same time the legal age to start working is reduced by the government

4) There was a baby boom 20 years ago.

Answer 1

1. Demand for labour increase leading to a rightward shift in DL and thus an increase in equilibrium quantity of labour and wages

2. Supply of labour increases causing a rightward shift in SL and thus thus an increase in equilibrium quantity of labour and a decrease in wages.

3. Demand for labor increases due to reduction of taxes and supply of labor increase because of lowering of working age thus leading to a rightward shift in DL and a rightward shift of SL and thus the wages remain the same but the quantity of labour increases.

4. Supply of labour increases as no of people in the working age group increase and this leads to a rightward shift in SL and thus causing an increase in quantity of labor but a fall in wages