Question

Make a list of the variables that shift demand and supply of labor in each period, consumption in each period and demand of investment goods. Plot the market for current goods in equilibrium. Do the same for the market of current labor. Use the equations you found above. Illustrate using a graph the effects on these markets from a negative change in the following variables: z, present taxes, future taxes, current and future government expenditure. Do each case independently and carefully explain the mechanisms.

Answer 1

Variables that shift demand and supply of labour in each period are as follows:

1.Demand for Output	When the demand for the good produced (output) increases, both the output price and profitability increase. Labor demand goes up to increase production and meet demand.
2.Education and Training	A well-trained and educated workforce causes an increase in the demand for that labor by employers. Increased levels of productivity within the workforce will cause the demand for labor to shift to the right. If the workforce is not well-trained or educated, employers will not hire from within that labor pool, since they will need to spend a significant amount of time and money training that workforce. Demand for such will shift to the left.
3.Technology	Technology changes can act as either substitutes for or complements to labor. When technology acts as a substitute, it replaces the need for the number of workers an employer needs to hire. For example, artificial intelligence is ensuring that we have driverless cars and therefore,the need for drivers is obviated,leading to lesser no. of drivers demanded. An increase in the availability of certain technologies may increase the demand for labor. Technology that acts as a complement to labor will increase the demand for certain types of labor, resulting in a rightward shift of the demand curve. For example, the increased use of computerisation or digitisation has increased the demand for information technology professionals who can resolve software and hardware issues related to a firm’s network. More and better technology will increase demand for skilled workers who know how to use technology to enhance workplace productivity. Workers will need to continuously upgrade themselves else they will become obsolete.
4.Number of firms operating	An increase in the number of firms producing a given product will increase the demand for labor resulting in a shift to the right. A decrease in the number of firms producing a given product will decrease the demand for labor resulting in a shift to the left.
5.Government Regulations	Complying with government regulations can increase or decrease the demand for labor at any given wage. In the real estate industry,the government might come out with welfare projects to ensure housing for the poor people.Such projects will necessitate the requirement of additional labor supply to complete the projects.
Quantity or no. of Workers An increased number of workers will cause the supply curve to shift to the right. An increased number of workers can be due to several factors, such as immigration, increasing population, an aging population, and changing demographics. Policies that encourage immigration will increase the supply of labor, and vice versa. Population grows when birth rates exceed death rates; this eventually increases supply of labor when the former reach working age. An aging and therefore retiring population will decrease the supply of labor. Another example of changing demographics is more women working outside of the home, which increases the supply of labor. Required Education The more required education, the lower the supply. There is a lower supply of PhD mathematicians than of high school mathematics teachers; there is a lower supply of cardiologists than of primary care physicians; and there is a lower supply of physicians than of nurses. Government Policies Government policies can also affect the supply of labor for jobs. On the one hand, the government may support rules that set high qualifications for certain jobs: academic training, certificates or licenses, or experience. When these qualifications are made tougher, the number of qualified workers will decrease at any given wage. On the other hand, the government may also subsidize training or even reduce the required level of qualifications. For example, government might offer subsidies for nursing schools or nursing students. Such provisions would shift the supply curve of nurses to the right. In addition, government policies that change the relative desirability of working versus not working also affect the labor supply. These include unemployment benefits, maternity leave, child care benefits and welfare policy. For example, child care benefits may increase the labor supply of working mothers. Long term unemployment benefits may discourage job searching for unemployed workers. All these policies must therefore be carefully designed to minimize any negative labor supply effects.	Factors affecting Supply of labour