Question

Grocery workers are one of the essential workers in the time of COVID19 pandemic. One of the grocery workers are Costco workers. Suppose that the Costco company wants to hire more workers due to COVID 19 and Costco workers want to work fewer hours due to COVID 19. What will happen to equilibrium wage per hour of Costco workers and equilibrium number of hours of Costco workers? Analyze how equilibrium wage and number of working hours will change due to COVID 19 in three graphs because there may be three cases depending on the relative size of change in labor demand and labor supply. Label clearly Y-axis, X-axis, and two equilibrium points as E₀ before COVID 19 and as E₁ after COVID 19 and labor demand and supply as LD₀ and LS₀ before COVID 19 and labor demand and supply as LD₁ and LS₁ after COVID19. Show the change in equilibrium wage and working hours by arrows and summarize how these two (wage and working hours) changes in each case in words after drawing graphs.

Answer 1

If the Costco company wants to hire more workers it means that the labor demand curve will shift to the right. On the other hand the Costco workers want to work for few hours means that the supply of workers will reduce.

OX axis - No of hours

OY axis - wages

There will be three cases pertaining to this.

1) the wages increase but the number of hours remain unchanged.

We know the demand for labor will increase because the Costco company wants to hire more workers. This leads to a shift in the demand curve to the right(LD1).

The supply of labor will reduce to LS1 ie the supply curve will shift to the left. But the decrease in supply will be in the same proportion to the increase in demand. This will lead to an increase in the wage and the hours remaining the same as before covid 19 situation.

2) wages will increase and the number of hours will also increase.

With an increase in the demand the supply falls but note in the same proportion ie less than the increase in the demand. This leads to an increase in the wages and also the number of hours the workers work before covid 19 situation.

3) the wages will increase but the number of hours will reduce

If with an increase in the demand for labor the supply falls more than the increase in the demand, the number of hours will reduce and the wages will increase. this is the third situation. The number of hours will be less than before ethe covid 19 situation whereas the wages will be more.