Let E = En + Ei denote the total size of the labor force, where En and Ei repres
ID: 2496216 • Letter: L
Question
Let E = En + Ei denote the total size of the labor force, where En and Ei represent native-born workers and immigrants, respectively (measured in thousands). Assume that immigrants supply that labor inelastically, and the supply of native-born workers is governed by w=4En. The demand for labor is w=120–8Ed.
a) Suppose that initially there is no immigration at all: Ei =0. What is the equilibrium wage and level of employment?
b) Now suppose that there is some immigration and Ei = 6. What happens to the equilibrium wage, total employment, and
the employment of native-born workers?
Explanation / Answer
E = En+ Ei
w=4En
demand : w = 120-8Ed
(a) Equilibirum is where demand is equal to supply
120-8Ed = 4E
120 =12E
E = 10
w = 4x10 =$40
(b) Total E will now be = 10+4=14
with E =$14 the wage emplooyers will provide will be:
w = 120-8x14
w = 120-112
w = $8
Labor supply of native workers at this wage is:
8=4En
En = 2
The total labor supply will fall to 2+6 =8 labors.
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