Question

Grocery workers are one of the essential workers in the time of COVID19 pandemic. One of the grocery workers are Costco workers. Suppose that the Costco company wants to hire more workers due to COVID 19 and Costco workers want to work fewer hours due to COVID 19. What will happen to equilibrium wage per hour of Costco workers and equilibrium number of hours of Costco workers? Analyze how equilibrium wage and number of working hours will change due to COVID 19 in three graphs because there may be three cases depending on the relative size of change in labor demand and labor supply. Label clearly Y-axis, X-axis, and two equilibrium points as E₀ before COVID 19 and as E₁ after COVID 19 and labor demand and supply as LD₀ and LS₀ before COVID 19 and labor demand and supply as LD₁ and LS₁ after COVID19. Show the change in equilibrium wage and working hours by arrows and summarize how these two (wage and working hours) changes in each case in words after drawing graphs

Answer 1

• If the Costco company wants to hire more workers its means that the labor demand curve will shift to right.
• If the Costco workers want to work for few hours means that the supply of worker will reduce.
• As the demand increases and the supply gets reduced that means equilibrium wage rate will always go up in this situation. but according to the relative strength of change in demand in supply three scenarios to the equilibrium number of work will change. It may go up, down or remain the same.

There will be three cases pertaining to this

1.When the decrease in supply is weaker than than the increase in demand According to this casr- The equilibrium wage rate will go up and the equilibrium number of working hours will increase as the strength of the shortage is weaker than the new higher wage offers due to increased demand. we can see in the diagram the shift in the labour supply is less than the shift in the labour demand.

2. When the decrease in supply is more stronger than the increase in demand According to this case- Due to the shortage of workers, the equilibrium wage rate will go up and the equilibrium number of working hours will fall as the strength of the shortage is more than the new higher wage offers due to increased demand. we can see in the diagram the shift in the labour supply is more than the shift in the labour demand.

3. When the decrease in supply is equal than the increase in demand According to this case - The equilibrium wage rate will go up and the equilibrium number of working hours will remain the same as the strength of the shortage is equal to the new higher wage offers due to increased demand. here due to increased demand wage will go up and the shortage of supply will also make the wage go up. But the shortage of workers will be just offset by the higher wage offers. hence the wage change but the equilibrium number of working hours won't. we can see in the diagram the shift in the labour supply is almost equal to the shift in the labour demand.