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Do wage subsidy schemes reduce unemployment? Explain your answer using an appropriate diagram for labour market

Do wage subsidy schemes reduce unemployment? Explain your answer using an appropriate diagram for labour market

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Answer #1

Due to subsidy offered, employers increase their demand for labor.

This increases market wage rate as well as employment

Actual wage paid by firms is ws while workers receive w2

Thus, one can say that wage subsidies help increase employment or reduce unemployment

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