Explain why the reduction in employment would be less

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Reference no: EM13741770

Most industrial farms hire migrant workers, so the market for such workers is reasonably taken to be perfectly competitive. Suppose that all farms individually have a short-run elasticity of labor demand of –0.5. In other words, if the wages of migrant workers in a local labor market rose by 10% (say, because many of those workers decided to work at a recently-opened nearby factory), the farms in the area would want to hire 5% fewer workers. Nevertheless, it is true that if the wages of migrant workers rose by 10% everywhere, employment of migrant workers would fall by less than 5 percent in the short run.

A. Explain why the reduction in employment would be less than 5 percent in the latter case.

B. In light of the short-run elasticity of demand for migrant workers, how easy do you think it would be for the industrial farms to replace the workers’ efforts by using the existing stock of farm machinery more intensely?

C. If the nationwide 10% wage increase were permanent, would the employment of migrant workers fall more in the short run or in the long run? Why?

Reference no: EM13741770

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