In: Economics
3. Suppose the demand for labor is given by LD = 12 – 1/5 W (or W = 60 – 5L), and the domestic supply of labor is given by LS = 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 LS = 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?
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