Suppose that the government gives a fixed subsidy of T per firm in one sector of the economy to encourage firms to hire more workers. What is the effect on the equilibrium wage, total employment, and employment in the covered and uncovered sectors if we assume to start that each of the two sectors - I and II - employs workers who are equally skilled, with each sector having a labor demand curve given by w = 12 - 0.1L (where L = the number of hours of labor) and with each sector initially facing a labor supply curve given by w = 0.1L? This will allow you to specify the initial equilibrium wage rates in each of the two sectors. Then assume that a government subsidy is given in the covered sector I of $2 per hour (while the other sector II gets no subsidy).
Suppose that the government gives a fixed subsidy of T per firm in one sector of the economy to encourage firms to hire more workers. What is the effect on the equilibrium wage, total employment, and employment in the covered and uncovered sectors if we assume to start that each of the two sectors - I and II - employs workers who are equally skilled, with each sector having a labor demand curve given by w = 12 - 0.1L (where L = the number of hours of labor) and with each sector initially facing a labor supply curve given by w = 0.1L? This will allow you to specify the initial equilibrium wage rates in each of the two sectors. Then assume that a government subsidy is given in the covered sector I of $2 per hour (while the other sector II gets no subsidy).
