Question

Assume that the labour market can be described by the following supply and demand equations:

S:e = a + bP + cW & D:e = α + βP + η W

where e is the log of employment, W is the log wage, and P is a log of the “population.”

a) Interpret b and β. Explain how immigration may shift the population.

b) Solve for the equilibrium wage and employment level as a function of the population.

Answer 1

a. b speaks to the rate change in the supply of work in the work showcase with a percent change in the populace, while ?? speaks to the rate change in the interest of the work in the work advertise with a rate change in the populace level. With movement, the number of inhabitants in a given spot will increment. This will increment both the interest and the supply of the work as can be seen by the positive signs.

b. In the balance, the interest will be equivalent to the supply of work.

Along these lines, a+bP+cW=?+?P+?W

cW-?W=?+?P-a-bP

W= [(?- a)+(?- b)P]/(c-?)

e= a+bP+c [((?- a)+(?- b)P)/(c-?)]

e= [(c-?)(a+bP)+c(?- a)+c(?- b)P]/(c-?)

e= [ca-na-cbP-?bP+c?- ca+c?P-cbP]/(c-?)

e= [(c?- na)+P(c?- ?b)]/(c-n)