Question

Consider the case where the demand curve and supply curve for unskilled labor are given in the following table:

(1) Wage Rate (/hour)	(2) Wage Rate2 (/hour)	(3) Q of Labour Demanded (hrs/week)	(4) Wage Rate2 (/hour)	(5) Q of Labour Supplied (hrs/week)
8.5		1000		1900
8		1200		1800
7.5		1400		1700
7		1600		1600
6.5		1800		1500
6		2000		1400
5.5		2200		1300

1. What is the equilibrium wage rate? ____________
2. What is the quantity of labor hours hired at equilibrium? ____________

Consider the effect of an "employment insurance premium". This tax is set at $1.50/hour and paid in full by the employer. Fill in the empty column (2) above to assist you in answering the following questions:

3. What is the new equilibrium wage rate? ____________
4. What is the quantity of labor hours hired at the new wage rate (part 3)? ____________

5. Workers absorb how much of this tax? ____________
6. Employers absorb how much of this tax? ____________

Suppose now, that this employment insurance premium is paid in full by the workers instead of the employers. Fill in the empty column (4) & ignore column (2) above to assist you in answering the following questions:

7. What is the new equilibrium wage rate? ____________
8. What is the quantity of labor hours hired at the new wage rate (part 7)? ____________

9. Workers absorb how much of this tax? ____________
10. Employers absorb how much of this tax? ____________
11 Does it matter who pays the tax? __________

Answer 1

What is the equilibrium wage rate? $7, the point where quantity of labor demanded equals the supply of labor.
What is the quantity of labor hours hired at equilibrium? 1600 hours hiring is done at equilibrium

What is the new equilibrium wage rate? $8.5 is the new equilibrium wage. A tax of 1.5 is wholly paid by the employer.
What is the quantity of labor hours hired at the new wage rate (part 3)? quantity of labor hired is 1600 labor hours

1) Wage Rate (/hour)	(2) Wage Rate2 (/hour)	(3) Q of Labour Demanded (hrs/week)	(4) Wage Rate2 (/hour)	(5) Q of Labour Supplied (hrs/week)
8.50	10.00	1000		1900
8.00	9.50	1200		1800
7.50	9.00	1400		1700
7.00	8.50	1600		1600
6.50	8.00	1800		1500
6.00	7.50	2000		1400
5.50	7.00	2200		1300