5 The government of Fairlandia has announced a new policy re

5. The government of Fairlandia has announced a new policy requiring all employers to subsidise the childcare arrangements of their workers with young children. For simplicity, suppose that all of the workforce in Fairlandia have young children. What effect would such a policy have on the value of the marginal product of labour? How would this affect the demand for labour? Assuming there is no change in labour supply, what will be the policy\'s impact on wages and total employment? Why might the labour supply curve shift as a result of this policy?

Solution

Answer: The policy of all the employer subsidizing the childcare arrangements of their workers with young children will increase the Marginal Product of labour as the ouput increases with incraese in laobur input due to relaxing policy for the workers. The demand for labour may increase or decrease but the supply will certainly increase. Initially, by the application of such policy, the Mp of labour will increase so the demand for labour will also increase.

Assuming that there is no change in the labour supply, the policy impact on the wages and total employment will be quit subturning. The wages will fall in short run, both the demand and supply of labour will boost and at the existing wage the MP will increase. In simple words, when the policy is implemented, the labour supply will increase to take the advant of such benefits, so the wages will fall. With the increase in MP of the labour, the firm will demand more worker which will too increase the wage rate shortly. So, overall the total employment will increase.

The labour will shift outward beacuse of increase in labour supply due to the policy implication. The policy of employers subsidizing the childcare arrangemnets of the workers, will incraese the supply of labour and this will shift the labour curve outward, keeping wages constant.