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Let the inverse labor demand and inverse labor supply functions be represented by the following equations, where W is the hourly wage in dollars and
Let the inverse labor demand and inverse labor supply functions be represented by the following equations, where W is the hourly wage in dollars and E is the number of workers in thousands. W = 20 - ED W = 4 + ES Suppose now that the government grants firms a wage subsidy for $1 per worker per hour. In other words, if the wage is $10 an hour, the total cost to the firm of hiring an hour of labor will be $9 (with $10 going to the worker and $1 to the firm). What is the new labor market equilibrium wage after the introduction of the $1 wage subsidy for firms
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