Question

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

S:e = a + bP + cW

D:e = ? + ?P + ? 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 ?. Explain how immigration may shift the population.

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

STEP BY STEP PLEASE SO I CAN SOLVE THE NEXT ONE ON MY OWN. THANK YOU

Answer 1

a. b represents the percentage change in the supply of labor in the labor market with a percent change in the population, while ?? represents the percentage change in the demand of the labor in the labor market with a percentage change in the population level. With immigration, the population of a given place will increase. This will increase both the demand and the supply of the labor as can be seen by the positive signs.

b. In the equilibrium, the demand will be equal to the supply of labor.

So, 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)