Question

A large number of deaths have been recorded since the outbreak of the COVID-19 pandemic. This has reduced the number of households able to work and therefore reduces the supply of labour. Explain, using a demand-supply diagram, the impact of a decrease in the supply of labour on the equilibrium wage rate and the equilibrium level of employment.

Answer 1

However, if the equilibrium wage is less than the minimum wage, there will be a labor surplus: at the artificially high minimum wage, aggregate demand for labor is less than aggregate supply, resulting in unemployment (surpluses of labor).