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Evaluating Policy Responses to Labor Market Shocks
In 1981, a country with a large agricultural sector passed a law making a long-standing system of forced, unpaid labor illegal. In response to the resulting increase in their labor costs, farm owners lobby the government for a direct subsidy to help them hire workers at the new, higher market wages. As a government economic advisor, you are asked to evaluate this proposal. Critically assess the arguments for and against providing this subsidy. In your evaluation, consider the potential impacts on market efficiency, the distribution of economic welfare between farm owners and the newly freed workers, and the price of agricultural goods for consumers.
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Evaluating Policy Responses to Labor Market Shocks