Answer to Question #97882 in Macroeconomics for annie

Question

Recently government of Turkey is willing to increase the demand for labor in the country. Write a
policy the government can use for this aim. Explain how according to neoclassical labor market
model, this policy will increase the demand. (Or alternatively, explain in which way neoclassical
model fail to capture the effect of the policy you mention.)

Answer 1

In order to increase the demand for labor the government of Turkey can use policies such as advancement in technology that will change the marginal labor production or modification of prices of other aspect of production, for instance, shift in capital stock and price of labor. The shift in capital stock and price of labor is achieved when the governement improves its technology to lower the cost of running businesses. By lowering the cost of doing business Turkey wil increase the demand for labor in the short-run. However, neoclassical model does to consider aggregate demand as a useful factor to increase demand for labor. This model failed to capture the short-run increase in demand for labor generated by the policies above.