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. Concept

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

Step 2. Case 1

when wages are flexible

The X-axis represents the Quantity of labor.

The Y-axis represents the wage rate.

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

Step 3. Case 2

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.