Question

Analyze the following predictions for the state of the labor market, during and following the current crisis associated with the Covid-19 pandemic and consequent shutdowns:

A) "labor markets will have more monopsonies--a single dominant employer--but more also will have labor unions representing workers--so the net result on equilibrium wage (W*) rates will be indeterminate -- i.e., could go up or down (ambiguous)."

B) "unemployment rates will rise, but only slightly, because there will be both greater non-labor force participation and worker underemployment (reduced hours but still employed)."

C) "the distribution of earnings will NOT become more unequal, rather it will become more equal, because all types of labor are currently getting more raises, bonuses, hazard pay and other types of incentive pay for performance (including wage, salary and 'gig' labor)"

Answer 1

Due to the shutdown and halt in production, the labour market will through many changes.

a. It is not true that the labour market will have monopsonies with a single dominant employer. This is because many firms will be willing to hire. However, it cannot be denied that the nature of employment may undergo a change. But it should be understood that many companies are laying off and these employees then become desperate to look for jobs and because of that the employers may be in a better position to bargain and hire workers at lesser wages. Under such circumstances, the union power could diminish but they would still have a certain bargaining power which would have an indeterminate effect on wages.

b. Many analysts have predicted that the unemployment will rise across the globe as a result of this pandemic. It is said that there could be a loss of 25 million jobs across the world. Infact, many firms have already started laying off their employees because of the reduced work. However, it is possible that the employers may retain employees and make them work for reduced hours.

c.The distribution of earnings will not necessarily become equal because even though all types of labourers are getting incentives and bonuses, there would still be a difference in the earnings. There is a possibility that the inequality may reduce. But it should be remembered that many daily workers lost jobs which has pushed them into deeper poverty levels which could increase the inequality in the income distribution.