Problem: Data relating to the labour market in a small economy is provided below, where the work-force is shown in thousands.
Labourforce Labour supply Labour demand Real wage
AD (£/hour)
250 160 240 5
264 180 220 6
276 200 200 7
292 220 180 8
306 240 160 9
320 260 140 10
Question 1: If the real wage is £9 per hour, determine the levels of employment and voluntary and involuntary unemployment.
Question 2: Assumingthat the real wage isflexible, what are the equilibrium wage rate, the level of employment and the unemployment level?
Question 3: Now suppose that as a result of government measures to increase labour participation, the number of workers willing to work (AS) at the real wage rate of £7 has increased to 210,000, and that this increase, in percentage terms applies uniformlyto the numberof workerswillingto work, at all other wage rates. Write down the laboursupplywith the increased participation.
Question 4: Now assume also that due to cost economies, firms are recruiting an extra 51000 workers at each wage rate. Determine the equilibriumwage rate with the increased participation and increased recruitment.