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Question
Macroeconomics
Posted 9 months ago
Workers in Burginville are equally productive at every age. The mandatory retirement age in Burginville is 45 years old.
Which of the following is likely to happen if the mandatory retirement age is lowered to 40 ?
Choose 1 answer:
(A) Wages and employment decrease.
(B) Wages and employment increase.
(c) The supply of labor decreases.
(D) Wages decrease and output increases.
(E) The supply of labor increases.
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Answer from Sia
Posted 9 months ago
Solution
a
Mandatory Retirement Age and Labor Supply: Lowering the mandatory retirement age would likely increase the number of individuals who are not working, thus reducing the labor supply
b
Wages and Employment Relationship: With a decrease in labor supply, the scarcity of labor could lead to an increase in wages for the remaining workers, assuming demand for labor remains constant. However, the overall employment would decrease due to more individuals retiring
c
Labor Market Equilibrium: The new equilibrium in the labor market would reflect the reduced supply of labor, potentially leading to higher wages for those still employed, but lower overall employment levels
Answer
(A) Wages and employment decrease.
Key Concept
Labor Supply Decrease
Explanation
Lowering the mandatory retirement age reduces the labor supply as more individuals exit the workforce, which could lead to a decrease in employment. However, the effect on wages is ambiguous without additional information on the demand for labor; they could potentially increase due to reduced supply, but this is not a guaranteed outcome. The answer choice (A) assumes that the decrease in labor supply leads to a decrease in wages, which may not necessarily be the case.
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