Question

(a) In an attempt to help students find employment, assume that the government provides a wage subsidy to employers who hire students during the summer months. Analyse the potential impacts of such a policy on labour markets and student incomes/poverty.

(b) How would your results/analysis change if you were told that the elasticity of supply of student labour was more inelastic than you initially thought.

(c) If you were asked to evaluate the effectiveness of this policy, describe how you would do that. Describe the research method you would use, that you think is best and why, and the data you would use to discern the impact of the policy on student employment.

Answer 1

SOLUTION:-

a) As a result of wag subsidy to employers provided by government, there would be high demand of students in the labor market. Employers would be highly interested to hire students and thus the demand of labor students increases in the market.

* Students would also get regular jobs if there is an increase of demand of students in the labor market. This regular jobs would fetch them money in the from of salary and thus their income level increases leading to lower level of poverty.

b) If the elasticity of supply of student labor was more inelastic than is initially thought, then inpite of large change in wages, there is only a small change in the labor supply. Due to wage subsidy, the students would receive high salary so as to be attracted in the job market. As the elasticity of supply of student labor is inelastic in nature, there would only be a small change in the labor supply inspite of a big change in the wages of the labor.

c) In order to assess the effectiveness of this policy, there would be a close monitoring of change in the labor force after the annoucement of the policy. The student employment is being compared before and after the policy announcement. If there is an increase in student employment after the policy announcement, there is a positive relationship or else the negative relationship.

* A Causal Research studies the impact on the student employment based on policy announcement. This is the best method as it gives us an indication whether the policy is effective or not. If there is an increase in student employment after the policy announcement, the policy is effective or else not.

* The data used is the level of student employment before and after the policy announcement.