Final answer:
Labor demand changes impact wages and employment in differing ways depending on market flexibility. An increase in demand raises wages and employment levels, while a decrease combined with downward wage stickiness leads to unemployment.
Step-by-step explanation:
Considering the given labor demand functions for two countries, we can analyze the impact of labor market conditions on wages and employment levels. When the labor demand increases in the origin country, and wages can adjust upward, both the equilibrium wage and the equilibrium quantity of labor increase. Conversely, when the labor demand decreases and wages are sticky downwards, the quantity of labor demanded declines without a change in wages, resulting in unemployment.
In perfectly inelastic labor supply scenarios where supply is represented by a vertical line, any shifts in demand directly impact the level of employment. An increase in demand moves the equilibrium up along the fixed supply curve, leading to higher wages and more jobs. If the demand decreases, there will be a surplus of labor at the original wage, creating unemployment since wages cannot quickly adjust downwards.
When minimum wages are introduced above the equilibrium level, there can be a significant discrepancy between the quantity of labor demanded and supplied, causing a substantial increase in the unemployment rate. This simple model often differs from empirical findings, as real-world evidence may show less drastic effects.