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The article states "Some economists, Republican lawmakers and business owners say enhanced federal unemployment benefits are contributing to the labor shortage, because many workers receive more in government aid than they would get on the job." Use the supply and demand framework to show how an extra $300 per month in unemployment benefits changes the labor market equilibrium. Specifically, (i) would this cause the demand curve for labor to change? If you believe the demand curve would change, would the demand curve shift to the right or to the left? (ii) would this cause the supply curve for labor to change? If you believe the supply curve would change, would the supply curve shift to the right or to the left? Briefly explain your answers. c. Under what circumstances would a labor shortage develop? 

          The article states "Some economists, Republican lawmakers and business owners say enhanced federal unemployment benefits are contributing to the labor shortage, because many workers receive more in government aid than they would get on the job." Use the supply and demand framework to show how an extra $300 per month in unemployment benefits changes the labor market equilibrium. Specifically, (i) would this cause the demand curve for labor to change? If you believe the demand curve would change, would the demand curve shift to the right or to the left? (ii) would this cause the supply curve for labor to change? If you believe the supply curve would change, would the supply curve shift to the right or to the left? Briefly explain your answers. c. Under what circumstances would a labor shortage develop?
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Principles of Economics
Principles of Economics
Gregory Mankiw 8th Edition
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The article states "Some economists, Republican lawmakers and business owners say enhanced federal unemployment benefits are contributing to the labor shortage, because many workers receive more in government aid than they would get on the job." Use the supply and demand framework to show how an extra $300 per month in unemployment benefits changes the labor market equilibrium. Specifically, (i) would this cause the demand curve for labor to change? If you believe the demand curve would change, would the demand curve shift to the right or to the left? (ii) would this cause the supply curve for labor to change? If you believe the supply curve would change, would the supply curve shift to the right or to the left? Briefly explain your answers. c. Under what circumstances would a labor shortage develop?
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Transcript

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00:01 So here we're told to use a supply and demand framework.
00:03 So before i do anything else, i'm going to draw a supply and demand framework, right? so here we have the demand market for labor.
00:10 So i'm going to say l is the number of workers and w is the wage, right? w is the price of labor, l is the number of workers.
00:16 We have a supply of labor and a demand of labor, and the supply and the demand are here sort of different.
00:23 Remember that the supply here is workers.
00:25 Workers are supplying labor, firms are buying labor.
00:30 Labor, right? so we have an extra unemployment benefits, right? so we have plus ui benefits.
00:39 Is this affecting the demand or the supply? well, the ui benefits are going to workers, so it affects supply, not demand, right? the workers are the supply of labor.
00:52 The ui benefits are being paid to the workers and so the supply of labor is going to change.
00:58 So i would say to the firms, you would have no change, right? in particular, this demand from labor comes from the profitability of workers...
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