Question

In: Economics

A wage subsidy for low paid workers is proposed. Every low paid worker will get a...

A wage subsidy for low paid workers is proposed. Every low paid worker will get a $5 additional subsidy for every hour worked. The supply of low plaid workers is more elastic than the demand. Who gains more from this subsidy, workers or employers? Draw a graph and explain.

Solutions

Expert Solution

In following graph, wage rate (P) and quantity of labor (employment, Q) are measured vertically and horizontally respectively. D0 and S0 are initial demand and supply curves of labor, intersecting at point A with initial wage rate P0 and initial quantity of labor (employment) Q0. Since supply is more elastic than demand, S0 is flatter than D0.

After a subsidy is imposed, effective wage received by workers increases, therefore labor supply increases, shifting S0 rightward to S1, intersecting D0 at point B. Wage paid by firms decreases to P2 and wage received by workers increases to P1, while unit subsidy is (P1 - P2). Employment increases to Q1.

Share of subsidy received by workers = P1 - P0

Share of subsidy received by firms = P0 - P2

Since (P0 - P2) > (P1 - P0), firms (employers) gain more from the subsidy.

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

What percentage of American workers get paid above minimum wage?
What percentage of American workers get paid above minimum wage? In general, why do such workers get paid more than the government-mandated minimum wage?
1. What percentage of American workers get paid above minimum wage? In general, why do such workers get paid more than the government-mandated minimum wage?
1. What percentage of American workers get paid above minimum wage? In general, why do such workers get paid more than the government-mandated minimum wage?2. Based on your previous responses, do you believe that the minimum wage should be raised, lowered, remain as it currently is, or be altogether eliminated? If you think there should be a minimum wage, how would you arrive at the specific wage?
What is the BENEFIT to low wage workers (workers whose wage is near the minimum wage)...
What is the BENEFIT to low wage workers (workers whose wage is near the minimum wage) of raising the minimum wage?
A monopsony hire one worker at a wage of $6, two workers at a wage of...
A monopsony hire one worker at a wage of $6, two workers at a wage of $7 each, (by adding one worker each will cause a one dollar increase to the wage). If the marginal revenue product for all workers is $17, asking how much will the wage to pay?
Wage Subsidy for fast food workers. For this entire problem, assume that the labor supply curve...
Wage Subsidy for fast food workers. For this entire problem, assume that the labor supply curve is very wage-inelastic, and that the labor demand curve is downward sloping but relatively wage-elastic, and the labor market is competitive. a. (3 points) Draw a supply and demand diagram to show this labor market with a highly elastic labor supply curve and a relatively inelastic labor demand curve. Label your diagram carefully. b. Senator R. McDonald (D-NY) proposes $1 per hour wage subsidy...
The added worker effect is when A. workers increase their hours as the hourly wage increases....
The added worker effect is when A. workers increase their hours as the hourly wage increases. B. employers add more workers when product demand increases. C. one spouse enters the labor market when the other spouse sees their job or hours cut during a downturn. D. one spouse exits the labor market during a downturn.
what are the impacts of COVID-19 on labor demand and supply for low-wage workers for both employed workers
what are the impacts of COVID-19 on labor demand and supply for low-wage workers for both employed workers (e.g., package, food service, or food delivery workers and grocery store employees) and unemployed or furloughed workers
Factory workers at a company are paid a wage of $15 per hour. In addition, the...
Factory workers at a company are paid a wage of $15 per hour. In addition, the company pays benefits (vacation leave, sick leave, health insurance, etc.) equal to 75% of a worker’s base wage for a 40-hour week. Workers are paid 1.5 times the hourly rate for any overtime hours worked in excess of 40 hours during a week, but no additional benefits are paid for overtime work. a) How much wages will a worker receive for working 40, 42,...
Factory workers at a company are paid a wage of $15 per hour. In addition, the...
Factory workers at a company are paid a wage of $15 per hour. In addition, the company pays benefits (vacation leave, sick leave, health insurance, etc.) equal to 75% of a worker’s base wage for a 40-hour week. Workers are paid 1.5 times the hourly rate for any overtime hours worked in excess of 40 hours during a week, but no additional benefits are paid for overtime work. a) How much wages will a worker receive for working 40, 42,...
Factory workers at a company are paid a wage of $15 per hour. In addition, the...
Factory workers at a company are paid a wage of $15 per hour. In addition, the company pays benefits (vacation leave, sick leave, health insurance, etc.) equal to 75% of a worker’s base wage for a 40-hour week. Workers are paid 1.5 times the hourly rate for any overtime hours worked in excess of 40 hours during a week, but no additional benefits are paid for overtime work. a) How much wages will a worker receive for working 40, 42,...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT