Question

How would you expect the following changes to affect the prevailing wage and employment of servers in restaurants? Explanation and graph for all.

a. The pandemic reduces demand for restaurant meals.

b. New techniques reduce the amount of time servers need to take each order.

c. In order to raise more revenue, the government imposes a new payroll tax on restaurants. (That is, the government requires that restaurants pay some amount of money to the government for each worker they employ.)

d. Worse job prospects elsewhere in the economy cause more people to want to become servers.

Answer 1

a) In the prevailing pandemic situation the demand for restaurant meals have reduced considerably, As the demand has reduced the revenue of the restaurant owners have reduced. The restaurant owners with their limited revenue would try to reduce the employment as they cannot afford paying their wages anymore This would cause a reduction in wages and unemployment.

b) New technique has reduced the amount of time required to serve by the servers. Due to the introduction of this new technigue, the restaurant owners would cut down the employment of the srvers, as now he has a more efficient technology to serve in less time.

c) As the governemt imposes a payroll tax, the restaurants owners now have to pay more tax per employee. In order to cut down the expenses per employee the employer would reduce the employment in their restautaurant which would increase unemployment or would cut down the wages per employee.

d) As more people now want to become servers, the restaurant owners now face a more inelastic supply of servers. Taking this opportunity the restaurant owners may cr down their wages, thus the market wage for the server reduces due to excessive supply of servers .