What happens to employment and wages of unskilled workers

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Question - Several proposals have been made to encourage employers to hire former welfare recipients, but there has been concern that such subsidies will lead to welfare recipients simply displacing other unskilled workers in their jobs.

a) Using a standard demand and supply diagram, assume that former welfare recipients are identical to other unskilled labor, and that work requirements simply shift the supply curve of unskilled labor. What happens to the employment and wages of unskilled workers? Explain in detail.

b) On the same graph in part a), now assume that there is a minimum wage that is above the original equilibrium level of wages for unskilled workers. What happens to the employment and wages of unskilled workers? What happens to the unemployment rate? Explain in detail.

Reference no: EM133173593

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