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Suppose the govenment were to subsidize the wages of all women in the population by paying their employers 50 cents for every hour the worked. What would be the effect on the wage rate women received? What would be the effect on the net wage employers paid? Show this on a graph On a separate graph, consider the labor market for men. Label both axes and show the equilibrium wage and employment levels. Would the subsidy for women affect the labor market for men? Why or why not? If so, show this on your graph

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Answer #1

In each graph, D0 & S0 are initial labor demand & labor supply curves intersecting at point A with initial wage rate w0 & initial employment L0.

(5)

The subsidy will effectively decrease the wage bill, so firms will demand and hire more labor. Demand for labor will rise, shifting labor demand curve rightward to D1, intersecting S0 at point B with higher employment L1. Wage paid by firms is w1 (a decrease) and wage received by workers is w2 (an increase), with (w2 - w1) being unit subsidy.

So 8 Lo LI

(6)

Assuming men and women are substitutes in labor productivity, subsidy for women's wage will decrease firm's demand for labor for men, shifting the labor demand curve leftward to D1, intersecting S0 at point B with lower wage rate w1 and lower employment of men L1.

AS LI Lo

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