Policymakers sometimes propose laws requiring firms to give workers certain fringe benefits, such as health insurance or paid parental leave. Let’s consider the effects of such a policy on the labor market.

a. Suppose that a law required firms to give each worker $3 of fringe benefits for every hour that the worker is employed by the firm. How does this law affect the marginal profit that a firm earns from each worker at a given cash wage? How does the law affect the demand curve for labor? Draw your answer on a graph with the cash wage on the vertical axis.

b. If there is no change in labor supply, how would this law affect employment and wages?

c. Why might the labor-supply curve shift in response to this law? Would this shift in labor supply raise or lower the impact of the law on wages and employment?

d. As discussed in Chapter 6, the wages of some workers, particularly the unskilled and inexperienced, are kept above the equilibrium level by minimum-wage laws. What effect would a fringe-benefit mandate have for these workers?