a. What are the equilibrium wage and employment if the labor market is competiti

Question

a. What are the equilibrium wage and employment if the labor market is competitive? What is the unemployment rate?

b. Suppose the government sets a minimum hourly wage of $8. How many workers would lose their jobs? How many additional workers would want a job at the minimum wage? What is the unemployment rate?

In a particular industry, labor supply is Es=10+w and labor demand is ED=40-4w; where E is the level of employment and w is the hourly wage. a. What are the equilibrium wage and employment if the labor market is competitive? What is the unemployment rate? b. Suppose the government sets a minimum hourly wage of $8. How many workers would lose their jobs? How many additional workers would want a job at the minimum wage? What is the unemployment rate?

Explanation / Answer

For equilibrium ,

ED = ES ,

=> 10 + W = 40 -4W

=> 5W = 30 => W = 6

equilibrium wage = 6

and Equilibrium employment = 10 + 6 =16 .

As ED = ES , The rate of unemployment = 0 .

b. If minimum wage = $8

Es = 10 + 8 =18

ED = 40 - 4* 8 = 8 ,

The no. of people that will lose their job =Equilibrium employment - ED = 16 -8 = 8

Additional workers that would want a job at the minimum wage = ED - ES = 18 -8 =10

The unemployment rate = (8 / 18 ) * 100 = 44.44 %

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