Question

Suppose you work for the Immigration and Naturalization Service (INS) and are responsible to access the potential impact of an increase in immigration on the domestic labor market. Since you’re a trained labor economist you’ve correctly identified that you have a market for domestic assembly plant workers parameterized by the labor supply and demand equations $L_S^D\:=\:-30+6W$ LSD=?30+6Wand $L_D\:=\:170\:-\:2W$ LD=170?2W where W = an hourly wage and L = 100’s of workers. You also know that the migrating workers will have a labor supply relation of $L_S^M=\:-10\:+\:4W$ LSM=?10+4W.   We further know that these foreign workers each earn approximately $6.00 per hour (USD) in their native labor markets. Local employers of this type of labor are pushing to allow these workers into the market, but a group representing domestic workers is strongly against the plan since it expects its workers will retain their existing labor supply relation regardless of other changes in the market.

Both of these groups have access to the labor supply and demand relations, but don’t know what other changes to expect. As an economist, however, you know this change, if allowed, will effect the markets in ways neither the workers or firm anticipate, and you have determined that allowing these workers into the market will increase the demand for your firm’s production by 15%, such that labor demand will increase to $L_D\:=\:195\:-\:2W$ LD=195?2W. You further expect an increase in demand for other goods and services in the market opening up some 4,000 good paying jobs, of which you expect at least 500 to be management and supervisory positions with a high level of pay.

How many migrant workers would the firm expect to employ as a result of this change?

Based on your calculation and given your additional knowledge of the effects of this change for this type of worker and these firms, what do you expect will be the new equilibrium wage these firms will have to pay?

How many workers do you expect the firm will attract based on the market clearing wage you expect?