Question

Consider the market for labour. Using a supply and demand diagram, show theimpacts of the following events on the market’s equilibrium wage and labour quantity.

(a) An increase in immigration.

(b) An infectious disease kills 30% of the workforce.

(c) Workers gain skills that make them more productive.

Answer 1

Sol :
Market for labour is in equilibrium where Demand for the labour is equal to the supply for the labour.

a) An increase in Immigration :

Immigration means increase in workers by shifting from the other countries. So, this will lead to increase the number of labourers in the market and will shift the Labour Suply curve to the right . Due to the shift in Right , Supply of the labour exceeds the demand , which creates the situation of the Excess supply. Due to excess supply Wage Rate will Fall and Quantity of labourers increases than before.

b) An infectious Disease kills 30% of the workforce :

Disease kills the workforce will reduce the number of the workers in the market which means that it will shift the supply curve to the left. Due to which Demand for the labourers exceeeds the Supply means creating the situation of excess demand. Due to Excess demand , wage rate for the workers will increase and Quantity of labourers Decreases than before.

c) Workers gain skills that make them more productive.

This will have no impact on the Equiibrium market for the labour. because , it will neither increase or decreases the demand or supply for the labourers . So , wage rate and Quantity of labourers will be the same as before.