Suppose that the government passes a law requiring employers to provide employees some benefit (such as a guaranteed pension) that raises the cost of an employee by €4 per hour.

a. What effect does this new law have on the demand for labour? (In answering this and the following questions, be quantitative when you can.)

b. If employees place a value on this benefit exactly equal to its cost, what effect does the new law have on the supply of labour?

c. If the wage is free to balance supply and demand, how does this law affect the wage and the level of employment? Are employers better or worse off?

Are employees better or worse off?

d. If a minimum wage law prevents the wage from balancing supply and demand, how does the new law affect the wage, the level of employment and the level of unemployment? Are employers better or worse off? Are employees better or worse off?

e. Now suppose that workers do not value the benefit arising from the new law at all. How does this alternative assumption change your answers to parts (b),

(c) and

(d) above?