Consider a guest worker program whereby Mexican citizens could work in the U.S. People in Mexico...

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Consider a guest worker program whereby Mexican citizens could work in the U.S. People in Mexico would be matched with a U.S. employer. The employer would have to demonstrate a need for workers and prove that U.S. citizens won't take the jobs. The matched workers would get "guest worker" cards allowing them to stay in the US for three years. The cards would be renewable for three-year periods but not indefinitely. a. Draw labor market demand and supply graphs showing the change in labor demand and/or labor supply in the U.S. and in Mexico resulting from this program.
	
Document Preview: Consider a guest worker program whereby Mexican citizens could work in the U.S.  People in Mexico would be matched with a U.S. employer.  The employer would have to demonstrate a need for workers and prove that U.S.  citizens won't take the jobs.  The matched workers would get "guest worker" cards allowing them to stay in the US for three years.  The cards would be renewable for three-year periods but not indefinitely. a. Draw labor market demand and supply graphs showing  the change in labor demand and/or labor supply in the U.S. and in Mexico resulting from this program.  (So you want two labor supply curves: one for Mexico and one for the United States.) Explain your graphs. Assuming that Mexican citizens currently face formidable barriers to working in the United States, what effect would you expect enactment of this program to have on equilibrium wages and employment in each country? (i.e. What happens in Mexico?  What happens in the US?) b. Such a program involves administrative costs. Suppose that after a year of operation, the U.S. government starts to recover these administrative costs by making employers with guest workers pay a tax equal to 10% of the wages paid to their guest workers. Draw labor market demand and supply graphs showing the change in labor demand and/or labor supply in the U.S. and in Mexico resulting from this policy for recovering administrative costs. Explain your graphs. What effect would you expect enactment of this program to have on equilibrium wages and employment in each country? 2. In a particular industry the labor supply curve is W=10+2NS while the labor demand curve is W=40-ND, where NS is labor supply and ND is labor demand in employment terms. a. What are the equilibrium wage and employment if the labor market is competitive? What is the unemployment rate in the competitive market? b. Now suppose that the government sets a minimum hourly wage of 36. How many workers would lose their jobs? How...

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Consider a guest worker program whereby Mexican citizens could work in the U.S.   
People in Mexico would be matched with a U.S. employer.  The employer would have to  
demonstrate a need for workers and prove that U.S.  citizens won't take the jobs.  The  
matched workers would get "guest worker" cards allowing them to stay in the US for  
three years.  The cards would be renewable for three-year periods but not indefinitely.  
a. Draw labor market demand and supply graphs showing  the change in labor  
demand and/or labor supply in the U.S. and in Mexico resulting from this  
program.  (So you want two labor supply curves: one for Mexico and one for the  
United States.) Explain your graphs. Assuming that Mexican citizens currently  
face formidable barriers to working in the United States, what effect would you  
expect enactment of this program to have on equilibrium wages and employment  
in each country? (i.e. What happens in Mexico?  What happens in the US?)  
Answer: 
Mexico: 
Equilibrium wage in United States are usually higher than equilibrium wage in Mexico. So 
the enactment of the program (which allows Mexican workers to work in United States) 
would encourage labor to migrate from Mexico to United States and hence there would be 
decrease in the labor supply in Mexico. This can be represented by leftward shift in labor 
supply curve (from SS1 to SS2). Due to leftward shift in labor supply, there would be 
increase equilibrium wage but fall in equilibrium employment in the Mexican economy. 
[Refer figure1]
Figure1:
United State: 
As explained above, the enactment of this program would encourage labor to migrate in the 
United States. So labor supply would increase in the United State (from SS1 to SS2). As a 
result, equilibrium wage will fall (W1 to W2) but equilibrium employment would rise (E1 
to E2) in the United States. [Refer figure2] 
Figure2:
b. Such a program involves administrative costs. Suppose that after a year of  
operation, the U.S. government starts to recover these administrative costs by  
making employers with guest workers pay a tax equal to 10% of the wages paid to  
their guest workers. Draw labor market demand and supply graphs showing the  
change in labor demand and/or labor supply in the U.S. and in Mexico resulting  
from this policy for recovering administrative costs. Explain your graphs. What  
effect would you expect enactment of this program to have on equilibrium wages  
and employment in each country?  
Answer: 
United States: 
Since employers are not required to pay a tax equal to 10% of the wages paid to their guest 
workers, they would now hire fewer amounts of workers from Mexico and hence there 
would be decrease in the labor demand, causing labor demand curve to shift leftward (from 
DD1 to DD2). As a result, there will be decline in both equilibrium wage and employment in 
the United States. [Refer figure3] 
Figure3:
Mexico: 
As explained above, due to imposition of tax, demand for Mexican labor in the United States 
would fall and therefore Mexican labor would migrate back to Mexico. So labor supply in 
the Mexico would increase, causing labor supply curve to shift rightward (from SS1 to SS2). 
As a result, equilibrium wage will fall (W1 to W2) but equilibrium employment would rise 
(E1 to E2) in the Mexico. [Refer figure4]
Figure4:
2. In a particular industry the labor supply curve is W=10+2NS while the labor demand  
curve is W=40-ND, where NS is labor supply and ND is labor demand in employment  
terms.  
a. What are the equilibrium wage and employment if the labor market is  
competitive? What is the unemployment rate in the competitive market?  
Answer: 
Labor supply curve is W=10+2NS, implies NS = (W/2) – 5  
And labor demand curve is W=40-ND, implies ND = 40-W 
At equilibrium, labor demand = labor supply i.e. 
10+2N =40-N, implies equilibrium employment N* = 10 
And equilibrium wage W* = 10+2*10 = $30 
At this competitive wage, we note that quantity demanded for labor equals quantity 
supplied, so unemployment rate is zero in the competitive market. 
b. Now suppose that the government sets a minimum hourly wage of 36. How many  
workers would lose their jobs? How many additional workers would want to work  
at this wage? What is the unemployment rate?  
Answer: 
At the minimum wage of $36,

Consider a guest worker program whereby Mexican citizens could work in the U.S. People in Mexico would be matched with a U.S. employer. The employer would have to demonstrate a need for workers and...

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