The following table models labor supply and demand (in thousands of people).Wage Quantity Supplied Quantity Demanded15 120 13020 130 13525 140 14030 150 14535 160 150Due to COVID-19, the labor demand curve shifts. The new demand can be modeled as follows.Wage Quantity Demanded15 11020 11525 12030 12535 130In the short run, wages are sticky and remain the same as before the pandemic. What is the decline in the number employed?
Question
The following table models labor supply and demand (in thousands of people).Wage Quantity Supplied Quantity Demanded15 120 13020 130 13525 140 14030 150 14535 160 150Due to COVID-19, the labor demand curve shifts. The new demand can be modeled as follows.Wage Quantity Demanded15 11020 11525 12030 12535 130In the short run, wages are sticky and remain the same as before the pandemic. What is the decline in the number employed?
Solution
To find the decline in the number employed, we need to compare the quantity demanded before and after the shift in the labor demand curve at each wage level.
At a wage of $15, the quantity demanded decreased from 130,000 to 110,000, a decline of 20,000.
At a wage of $20, the quantity demanded decreased from 135,000 to 115,000, a decline of 20,000.
At a wage of $25, the quantity demanded decreased from 140,000 to 120,000, a decline of 20,000.
At a wage of $30, the quantity demanded decreased from 145,000 to 125,000, a decline of 20,000.
At a wage of $35, the quantity demanded decreased from 150,000 to 130,000, a decline of 20,000.
So, at each wage level, the decline in the number employed is 20,000. However, since wages are sticky in the short run and remain the same as before the pandemic, the actual decline in employment would depend on the prevailing wage rate. If the wage rate was $25 before the pandemic, for example, the decline in employment would be 20,000.
Similar Questions
The following table models labor supply and demand (in thousands of people).Wage Quantity Supplied Quantity Demanded15 120 13020 130 13525 140 14030 150 14535 160 150Due to COVID-19, the labor demand curve shifts. The new demand can be modeled as follows.Wage Quantity Demanded15 11020 11525 12030 12535 130In the short run, wages are sticky and remain the same as before the pandemic. If the working-age population is 200 thousand and the labor force is 140 thousand, what is the unemployment rate during the pandemic?(Round your answer to one decimal point.)
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