Question: During covid pandemic, construction workers migrated back to their villages and at the same time the demand for construction of houses also fell due to uncertainty and loss of income. Explain using demand and supply diagram, how this would have affected the market for workers and their wages?
Answer:
To understand the impact of the COVID-19 pandemic on the market for construction workers and their wages, we can use the demand and supply framework.
Initial Market Conditions:
Demand for Workers: The demand for construction workers comes from companies and individuals who need construction services.
Supply of Workers: The supply of construction workers is determined by the number of workers available in the market.
Effect of the Pandemic:
Decrease in Demand:
Due to the uncertainty and loss of income during the pandemic, the demand for new houses and construction projects decreased. This is represented by a leftward shift in the demand curve (D1 to D2).
Decrease in Supply:
Many construction workers migrated back to their villages, reducing the supply of available workers in the urban market. This is represented by a leftward shift in the supply curve (S1 to S2).
The overall effect on wages depends on the relative magnitudes of the shifts:
If the demand decreases more than the supply, wages would fall.
If the supply decreases more than the demand, wages could potentially rise.
However, in most cases during the pandemic, both demand and supply fell significantly, which could lead to a reduction in the equilibrium quantity of workers employed, with the change in wages depending on which factor had a stronger effect.
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