Final answer:
Reducing tax rates across the board tends to increase labor supply, which potentially raises the employment-population ratio and decreases unemployment but may result in lower real wages. A positive oil shock can lower oil industry wages due to increased supply and reduced prices, but it might boost employment and wages in other sectors due to lower operational costs. Both events have significant effects on the overall economy and labor market.
Step-by-step explanation:
When the government reduces marginal income tax rates, it generally incentivizes people to work more as the after-tax return on labor increases. This means that the real wage may decrease somewhat as employers can hire more labor at a lower cost due to the increased labor supply. Consequently, this could lead to an increase in the employment-population ratio, as well as a reduction in unemployment, as more people are willing to work given the higher net income. Additionally, an increase in labor supply could drive up potential output, contributing to more real GDP growth.
In the case of a positive oil shock, where new technology allows for cheaper extraction of oil, leading to a reduction in oil prices, can have mixed effects. On one hand, lower oil prices may reduce costs for businesses broadly, leading potentially to higher demand for labor and increased employment. This can increase the employment-population ratio and reduce unemployment. On the other hand, wages in the oil industry could decrease due to increased oil supplies and reduced prices. However, the overall effect on wages in the economy could be positive if cheaper oil prices lead to business expansion and hiring in other sectors.
These scenarios illustrate how fiscal and commodity price changes can have wide-reaching effects on the labor market and the economy as a whole. Public policy and external shocks, such as tax rate changes or oil price fluctuations, exert significant influence on labor market conditions and economic performance.