Question

The United States is increasingly outsourcing jobs to India which means that work is done in India rather than in the United States.  

For​ example, the Indian firm Tata Consultancy​ Services, which provides​ information-technology services, increased its work force by​ 70,000 workers in 2010 and expected to add​ 60,000 more in 2011​ ("Outsourcing Firm Hiring​ 60,000 Workers in​ India," San Francisco

Chronicle​,

June​ 16, 2011). As a result of increased​ outsourcing, wages of some groups of Indian skilled workers have increased substantially over the years. Use a​supply-and-demand diagram to explain this outcome.

Consider the labor market for India illustrated in the figure to the right.

​1.) Using the line drawing

tool​,

graph a new labor demand curve. Label this curve

​'Upper D squaredD2​.'

​2.) Using the point drawing

tool​,

indicate the new market equilibrium wage and employment level. Label this point

​'e 2e2​.'

Carefully follow the instructions​ above, and only draw the required objects.

Answer 1

The example above states that since the United States is increasingly outsourcing jobs to India, more work is done in India. When the Indian firm Tata Consultancy​ Services, increased its workforce by 70,000 workers in 2010 and will add 60,000 more in 2011, the industry or the market labor demand curve will increase by 60,000 workers. Hence, the Price or the real wage rate would increase from P to P^' and the Quantity of workers employed would also increase by 60,000 and in the figure below, the difference between Q and Q^' is 60,000.

1) The new labor demand curve is drawn and labelled as 'Upper D squaredD2​.' in the figure below.

2) The new market equilibrium wage is P^' and the new employment level is Q^'. The old equilibrium is labelled as e1e1 and the new equilibrium is labelled as ​'e 2e2​.' in the graph below.