Q3. Decision-Making and Scarcity (I & II)(L3 & L4)

Background: The current 'Great Resignation' in the US has shed light on zillennials' critical response to low pay and poor working conditions, owing in part to burnout experienced during the pandemic. As some young workers in their 20s and early 30s from the leisure and hospitality sector are saying, 'I love this industry, but I will not come back unless there are permanent wage increases' [Saru Jayaraman, president of One Fair Wage, cited in Raisa Bruner (2021),https://time.com/6111245/young-workers-quitting/].

Your tasks for Q3 are as follows:

Consider workers in the US leisure and hospitality sector, also known as the 'accommodation and food services' sector, which experienced the largest increase in wage of all the sectors from second quarter (Q2) of 2020 to Q2 of 2021, as detailed here:

Desilver, Drew (2021) 'Many U.S. workers are seeing bigger paychecks in pandemic era, but gains aren't spread evenly, Pew Research Center, December 22nd, available:https://www.pewresearch.org/fact-tank/2021/12/22/many-u-s-workers-are-seeing-bigger-paychecks-in-pandemic-era-but-gains-arent-spread-evenly/

Suppose the same percentage change of average weekly wages (+18.4%) between Q2 2020 and Q2 2021 was carried on through to Q2 2022.Based on the dollar value of change, this discussion and economic theory, analyse the case for young workers in this sector from Q2 2021 to Q2 2022, explaining in detail the income and substitution effects of the rise in wages. Support your answer with a diagram, and with justification as to which particular effect dominates (either income or substitution). Hint: think about the role of preferences for free time from this wage increase during a post-pandemic, economic-led recovery of high inflation and low unemployment.

[400 or so words is the suggested amount for Q3]

[4 marks for diagrams + 6 marks for quality of analysis = 10 marks]