4.1 Demand and Supply at Work in Labor Markets

Consider a situation where new regulations for compliance purposes are introduced in the financial industry, what effect will this action have on the demand for compliance officers in the economy?

It will decrease the demand for compliance officers.

It will increase the demand for compliance officers

The effect on compliance officers is negligible.

None of the above.

It will increase the demand for compliance officers

The government's introduction of new regulations can have different effects on the demand of labor in different industries. If the government's regulations require a particular type of professionals to meet the jobs requirements, it will tend to increase the demand for these jobs. This regulation affects compliance and so the demand for compliance officers will increase.

All of the following impact labor supply except _______________.

an increase in the amount of education required to perform a job

a decrease in the amount of education to perform a job

a significant technological innovation that makes production much cheaper 

an increase in population size

a significant technological innovation that makes production much cheaper 

Technology affects the demand for labor, but not the supply. Labor supply can be impacted by changes in the number of workers, changes in required education, and government policies.

The graph below shows the market for automobile factory workers. The price of steel has decreased by 20%. Demonstrate the effect this has on the demand for automobile factory workers. 

If prices of inputs of production fall, production becomes more profitable and suppliers demand more labor to increase production. This causes a rightward shift in the demand curve for labor, leading to a higher equilibrium wage and quantity of automobile factory workers.

Note that the supply of automobile factory workers does not change. 

A minimum wage is a price floor on wages that must be set __________ the equilibrium wage in order for it to be binding or effective. 

either at or above

above

below

at

above

Minimum wage laws prohibit wages below a certain level. To be effective or binding, minimum wage laws must be set above the equilibrium wage rate for the labor market in question.

In general, what effect does a technological improvement have on labor demand?

It increases demand for certain types of workers.

It decreases demand for certain types of workers.

It increases demand for all workers.

It decreases demand for all workers.

It increases demand for certain types of workers.

It decreases demand for certain types of workers.

Technology has a complicated relationship with the demand for labor, as they can be substitutes or complements to each other. When a new technology is introduced, some jobs are more in demand, some jobs are in less demand. The introduction of personal computers, for example, created a demand for IT specialists but reduced demand for typewriter repairmen.

Which of the following factors shift labor supply?

Select the two correct answers below. 

• changes in the real wage

• government subsidies for education in certain industries 

• demand for output

• education requirements for workers in certain industries 

government subsidies for education in certain industries 

education requirements for workers in certain industries 

Government subsidies for certain education fields is a factor that shifts labor supply because it can increase the number of qualified workers. For example, if subsidies make nursing programs cheaper for students, the supply of nurses in the labor market will increase. 

Education requirements for workers in certain industries can also shift labor supply since supply will depend on the number of workers who meet the education qualifications. 

The graph below shows the market for labor (pizza makers) at a small pizza restaurant. Suppose that the owner of the pizza place decides to sell one of the ovens currently used to make pizza. On the graph below, show how this decrease in the number of ovens will affect the demand for pizza makers.

When the availability of capital (ovens) used in the production of pizza falls, fewer workers operating ovens will be needed. The restaurant will decrease its demand for pizza makers. As a result, labor demand will shift to the left causing a decrease in the equilibrium wage rate and quantity of pizza makers.

Note that the supply of pizza makers does not change.

If a minimum wage (a price floor) for dentists is set below the prevailing market wage rate, then this will result in _____________ .

an inefficient quantity of dentists

the free market equilibrium quantity of dentists

a shortage of dentists

a surplus of dentists

the free market equilibrium quantity of dentists

If the minimum wage lies below the equilibrium wage level, wages could fluctuate according to market forces above this price floor, but they would not be allowed to move beneath the floor. In this situation, the price floor minimum wage is nonbinding —that is, the price floor is not determining the market outcome. 

Which of the following will increase labor supply?

higher death rate than birth rate in a given economy

lenient immigration laws

baby boomers reaching retirement age

all of the above

lenient immigration laws

Lenient immigration laws will attract people wanting to leave their home country. This will increase population size and, by extension, increase labor supply.

How would a government subsidy to help fund education for children of employees impact the supply for labor?

The supply increases.

The supply decreases.

The supply does not change.

The effect is unknown.

The supply increases.

A government subsidy increases supply because it makes the position more appealing. It also provides education to more people, which increases supply.

Which of the following descriptions explains how government subsidies on education and job training impact labor supply?

Government subsidies do not impact supply of labor, only demand of labor.

Government subsidies make training and education more attainable, increasing the supply of labor.

Government subsidies lower wages.

Government subsidies do not effect the labor market supply.

Government subsidies make training and education more attainable, increasing the supply of labor.

Government subsidies on education and job training supply the labor market with more qualified workers because education and training are more attainable.

True or false?

An increased level of required education decreases labor supply.

True

An increased level of required education decreases labor supply because there are fewer workers who will meet the qualifications.

Which of the following would not affect labor supply?

immigration laws

government subsidies for medical students 

an increase in wage in a particular labor market

high birth rates

an increase in wage in a particular labor market

A change in wage will lead to a movement along labor demand or labor supply curves, but it will not shift those curves.