Chapter 12.1, Problem 3R

To determine

To evaluate: the kind of demand and supply situation creates tight labor market

Explanation of Solution

Once an economy is heading to full employment, it is difficult to hire and place upward pressure on salaries. As an economy hits full employment, further production needs to be done to satisfy ever-rising product demand. Nonetheless, if the economy is close to full employment, it is not easy to recruit extra labor as the pool of available employees is limited. So, the aggregate demand for labor curve moves to the right because businesses would like to hire more employees, but there is no supply. Ultimately this surplus demand leads to a steady increase in current workers wages because employers now have higher bargaining power.

Economics Concept Introduction

Introduction: The labor market, relates to labor supply and demand, in which supply is generated by the workers and demand is given by the employers. It is a significant part of every economy, and is closely correlated with money, commodities, and services markets.