Running head: Assignment Activity Unit 2 1

Analyzing Demand and Supply in the Labor Market: Numerical Evaluation

Assignment Unit 2

University of the People

Instructor Name: Shabana Maqsood

 Analyzing Demand and Supply in the Labor Market: Numerical Evaluation

The labor market is a key component of any economy, and understanding the

dynamics of supply and demand in this market is crucial for businesses and policymakers.

This paper aims to analyze the demand and supply in the labor market and evaluate the

impact of technological advancements on wages and employment. By examining the

provided labor market data, we will assess the current state of market equilibrium and explore

the consequences of an increase in labor productivity.

1. Refer to the demand and supply data in the table provided and explain how this

increase in labor productivity will impact the overall labor market dynamics.

The demand and supply data presented in the table illustrate the relationship between the

quantity of labor demanded (Qd) and supplied (Qs) at different wage rates in the current labor

market. Now, let's consider the hypothetical scenario of an increase in overall labor

productivity, signifying that workers can generate more output within the same time frame.

As noted by Shapiro et al. (2023), an augmentation in labor productivity typically implies that

firms can attain their production objectives with a reduced number of workers. This is due to

the fact that heightened productivity allows companies to achieve the same level of output

with fewer human resources. Consequently, the demand for labor may experience a decline

as firms require fewer workers to fulfill their production needs.

Now, connecting this concept with the provided data, an increase in labor productivity could

lead to a reduction in the quantity of labor demanded (Qd) at each wage rate in the table.
This decrease in demand has the potential to induce a shift in the overall labor market

dynamics. Factors such as the prevailing wage rate and the number of employed workers may

be influenced by this shift. Mostly like, the quantity supplied (Qs) at each wage rate may

exceed the quantity demanded (Qd), leading to a surplus of labor in the market. Let’s take the

wage rate of $100 per hour, with a quantity demanded (Qd) of 200 and a quantity supplied

(Qs) of 280.

Here, the surplus is 280 (Qs) - 200 (Qd) = 80 workers.

In essence, an increase in labor productivity has the capacity to impact the labor market by

not only modifying the quantity of labor demanded but also potentially influencing existing

wage rates. Additionally, changes in labor demand could have consequences for the overall

employment levels within the market.

2. Suppose there is an increase in labor productivity due to technological

advancements, leading to a decrease in the demand for labor .

Now let's consider the scenario where there is an increase in labor productivity due to

technological advancements, resulting in a decrease in the demand for labor to 200 workers.

The new wage rate is $100 per hour.

a. How increase in labor productivity impact the overall labor market dynamics.

The increase in labor productivity will impact the overall labor market dynamics by

reducing the quantity demanded and potentially increasing the quantity supplied. According

to the table, at a wage rate of $100 per hour, the quantity demanded is 200 workers, while the

quantity supplied is 280 workers.

 This indicates a decrease in the quantity demanded and an increase in the quantity

supplied compared to the previous equilibrium. The decrease in labor demand can be

attributed to increased productivity, which allows firms to produce the same output with

fewer workers. As a result, the labor market experiences a surplus of workers, leading to

downward pressure on wages (Shapiro et al., 2023).

b. Employer's Response to Increase in Labor Productivity

As an employer, faced with a surplus of labor at $100 per hour, the natural thing to do, given

the theory of demand and supply of labor explained by Shapiro et al. (2023), would be to

react by hiring fewer workers. Since there is an excess supply of labor, I could be more

selective, and perhaps I wouldn't need to hire as many workers as I would if there were a

shortage. My reaction, as an employer, in response to the increase in labor productivity and

the new wage rate of $100 per hour, about the decision to hire more or fewer workers would

depend on the cost-benefit analysis.

If the productivity gains offset the higher wage costs, it may be advantageous to hire more

workers. However, if the productivity gains do not offset the increased wage costs, it may be

more prudent to hire fewer workers. Therefore, the employer's response to increased labor

productivity at $100 per hour would depend on the specific circumstances and the financial

implications for the company.

Industry-specific nuances, market conditions, and the overarching financial health of the

organization play pivotal roles in shaping the ultimate course of action.

c. Strategies to Attract Skilled Workers

To attract skilled workers amid increased labor demand, several strategies can be

employed, according to the Superadmin (2021) article. Firstly, offering competitive wages
above the prevailing market rate can incentivize skilled workers to choose a particular

employer. Additionally, providing attractive non-monetary benefits such as flexible work

hours, career development opportunities, and a positive work environment can also help

attract skilled workers. Furthermore, establishing partnerships with educational institutions or

offering training programs can attract individuals seeking skill development and career

advancement opportunities.

Analyzing demand and supply in the labor market is essential for understanding

market equilibrium and the impact of technological advancements. The assessment of the

provided labor market data revealed a shortage in the current market equilibrium. With the

increase in labor productivity and the subsequent decrease in labor demand, the labor market

dynamics were affected, resulting in a new equilibrium at a higher wage rate. As an

employer, responding to the increase in labor productivity requires careful consideration of

the marginal productivity of labor. To attract skilled workers amid increased labor demand,

employers can employ strategies such as offering competitive wages, providing training and

development opportunities, offering additional benefits, and creating a positive work

environment.

900 words
 References

Shapiro, D., MacDonald, D., Greenlaw, S. A., Dodge, E., Gamez, C., Jauregui, Andres.,

Keenan, D., Moledina, A., Richardson, C., & Sonenshine, R. (2023). Principles of

microeconomics (3rd ed.). OpenStax. Licensed under CC 2.0.

Superadmin. (2021, February 19). 8 Proven Strategies to Attract and Retain Skilled

Workers/Labor. Brix Projects. https://www.brixprojects.com.au/8-proven-strategies-attract-

retain-skilled-workerslabour/