Question

1. You are the Chief Operating Officer of the Real Estate Development Firm of Ahren, Cenac and Widener and you are meeting with a client’s representative about setting up an office in the area

Over the last two months, unemployment has risen in Southwest Florida. Labor Force participation has declined and there are issues about how much space would be available in commercial real estate if six-foot distances are required in commercial office buildings.

1. What do you see as the short-run impact on labor supply/demand, wage rates given these developments?

2. What do you see as the long-run impact on labor supply/demand, wage rates of these developments?

3. There is some discussion that people/firms may seek out less urban/dense areas (such as Miami/ Tampa) to live and set up business operations. What impact would that have on Lee/Collier/Charlotte Counties?

Answer 1

Introduction: -

The Corona Virus Pandemic is resulting in global shutdowns which have never been seen before across all major economies. The resultant is that people are losing out on jobs, as companies remain shut and have the need to reduce costs to maintain profitability and not enter into the loss-making zone.

Even though, the government has taken fiscal and monetary policy measures to correct the same, yet the expectations of reduced aggregate demand which is the sum total of demand for goods and services and of aggregate supply are leading to a conclusion that indeed the problem of wage reduction and unemployment would come into place. Further, norms such as social distancing and maintaining a 6 feet gap between workers is expected to further worsen the impact on the economy.

In reference to the case study, all specific answers are as follows: -

Case Specifics: -

Part A) short-run impact on labour supply/demand

In the short run, as the offices remain shut and the demand for all goods which are non-essential is at a standstill, companies will experience significant losses and to overturn the same, will resort to firing people and reducing salaries as much as possible.

Thus, the demand for labour force will go down significantly and unemployed people will rise taking up the supply. On the wages part, the increase in demand would lead to a terrible situation for the existing employees, as they would find it hard to find jobs elsewhere on one hand, and on the other, they may have to feel the heat when it comes to pay cuts during months that offices remain closed.

Part B) What do you see as the long-run impact on labour supply/demand, wage rates of these developments?

In the long run, I expect that the labour demand and supply would normalize. The Government and the Federal Reserve are taking numerous measures to ensure that the availability of capital can be maintained at lower interest rates. This increases the demand for goods and services in the economy. Further, tax cuts can be expected by the government and the resultant would be a steady growing economy and stabilization in demand and supply.

It is expected that as the economies would open, reversal would not take much time as the problem is not structural but is a result of externality. As people regain confidence in the market, they would certainly open up and increase in employment and demand for labour force can be expected.

Part C) impact on Lee/Collier/Charlotte Counties?

If companies were to shift to counties that had lesser population it could result in higher demand in these markets for the labour force. Subsequently expansion in prices could take place and the wage rates in these countries could improve substantially.

If alternative labour force is to be realized, then companies could view these places and may take necessary actions.

Please feel free to ask your doubts in the comments section if any.