If the United States government were to increase the retirement income portion o
ID: 1110509 • Letter: I
Question
If the United States government were to increase the retirement income portion of social security enabling more American workers to retire, ceteris paribus, what will happen to the equilibrium wage rate and level of employment in the US labor market?
The equilibrium wage would rise and the equilibrium level of employment would rise
The equilibrium wage would rise and the equilibrium level of employment would fall
The equilibrium wage would fall and the equilibrium level of employment would rise
The equilibrium wage would fall and the equilibrium level of employment would fall
The equilibrium wage would rise and the equilibrium level of employment would rise
The equilibrium wage would rise and the equilibrium level of employment would fall
The equilibrium wage would fall and the equilibrium level of employment would rise
The equilibrium wage would fall and the equilibrium level of employment would fall
Explanation / Answer
An increase in retirement income portion of social security will essentially enable a higher proportion of american labor-force to retire earlier than expected. In such a situation, labor market would face a fall in the workforce as the retiring labor will leave employment gaps to be filled with new hires.
The equilibrium wage rate is determined by the intersection of labor demand and labor supply curves. A decrease in labor workforce will reduce the labor supply and hence, the equilibrium wage rate will increase.A fall in workforce will lead to a fall in equilibrium level of employment.
Hence, the correct answer is (b).
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