Question

Consider the labor market for nurses in a particular city hit hard by Covid-19. The event impacts the labor market in two ways: hospitals and public health agencies recognize the need for to hire additional nurses and pay them extra due to the hazard of working with those patients. Yet also more nurses from other cities recognize the need and move there temporarily to work.

a) Draw a supply/demand diagram for the labor market for nurses in that city and illustrate the shifts that result from the event.

b) What does the model predict regarding the quantity of nurses employed, and the wages at which they’re employed?

Answer 1

a. As can be seen in the diagram below, the increased need for more nurses leads to a rightward shift in the supply curve as denoted by D_1. Also, because more nurses temporarily move to the area, the supply also increases as denoted by the supply curve S_1.

b. It can be seen that the equilibrium quantity increases by a lot more than the rise in wages. The wages increase only slightly because both demand and supply have increased in similar amounts. The quality of nurses will definitely improve because with the increased supply of nurses, only those who are skilled will be employed.