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

Decrease in supply of labour will make the wage rate to increase. The level of employment will also increase since there will be an increase in the demand for labor. This will result to the equilibrium wage rate and equilibrium level of employment increasing.