Question

A government passes a family-friendly law that no companies can have evening, nighttime, or weekend hours so that everyone can be home with their families during these times. Analyze the effect of this law using a demand and supply diagram for the labor market: first assuming that wages are flexible, and then assuming that wages are sticky downward.

Short answer

If wages are flexible, then there would be a fall in demand for labor.

If wages are sticky downward, there would not be such change.

Step-by-step solution

Step 1. The new law.

A new law is passed that bans workings hours during the evening, night, and on weekends to allow workers to spend time with their families. As the number of working hours gets reduced, the wage rate that businesses would be willing to pay would decline.

Step 2. When wages are flexible.

The X-axis represents the Quantity of labor.

The Y-axis represents the wage rate.

when the demand for labor falls (Q to Q₁), then the demand curve shifts towards the left(D to D₁) wages rates will decline (W to W1).

Step 3. Wages are sticky downward.

The X-axis represents the Quantity of labor.

The Y-axis represents the wage rate.

when the demand for labor falls (Q to Q1), then the demand curve shifts towards the left(D to D1) because wages are sticky downwards & the equilibrium quantity of labor won't change.

The gap between Q to Q₂ shows the willingness of workers to do work at the going wages but not able to find one and this condition is considered unemployment.