3. Suppose the demand for labor is given by LD = 12 – 1/5 W (or...

3. Suppose the demand for labor is given by L_D = 12 – 1/5 W (or W = 60 – 5L), and the domestic supply of labor is given by L_S = W – 6 (or W = L + 6)

a) Calculate the market-clearing quantity of labor and the wage and graph (and label) everything:

L* = ____________

W* = ___________

b) Suppose that newly arriving immigrants have L_S = 2W – 12 and are as productive as domestic workers. What is the new joint labor supply function? (hint: add up the labor supply functions horizontally, not vertically)

c) What is the new market-clearing quantity of labor and the wage?

W* = __________

L* = __________

L domestic = __________

d) How many domestic workers are no longer working as a result of immigration?

Solutions

Expert Solution

a) At equilibrium, labor demand = labor supply

60 - 5L = L + 6

L = 9

At this L, W = 15

b) Supply curve of immigrants: Ls = 2W - 12

New joint labor supply function: 3W - 18

c) At new equilibrium, 12 - 0.2W = 3W - 18

W = 9.375

d) At wage of 9.375, domestic supply of labor is 3.375 which demand is 10.125 which result in domestic labor unemployed of 10.125 - 3.375 = 6.75

Rahul Sunny answered 1 year ago

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