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The goal of a subsidy to labor (such as the EITC) is to both raise wages and encourage employment to support low-income families. How does
The goal of a subsidy to labor (such as the EITC) is to both raise wages and encourage employment to support low-income families. How does the wage elasticity of demand affect the success of achieving these goals? (That is, are the goals better met if demand for labor is elastic or inelastic?) Illustrate your answer by showing a wage subsidy in two scenarios: relatively inelastic demand for labor and relatively elastic demand for labor. Assume an initial equilibrium of $10 per hour and 100 mn hours of labor employed. Also, keep in mind that the supply curve in the labor market reflects workers (supplying labor) while the demand curve reflects firms (demanding labor)
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