Professor Pessimist argues before Congress that reducing the size of the military will have grave consequences for the typical American worker. He argues that if 1 million individuals were released from the military and were instead employed in the civilian labor market, average wages in the civilian labor market would fall dramatically. Assume that the demand curve for civilian labor does not shift when workers are released from the military. First, draw a simple diagram depicting the effect of this influx of workers from the military. Next, using your knowledge of (i) the definition of the own-wage elasticity of labor demand, (ii)

the magnitude of this elasticity for the economy as a whole, and (iii) the size of civilian employment in comparison with this flood from the military, graph these events and estimate the magnitude of the reduction in wages for civilian workers as a whole. Do you concur with Professor Pessimist?