Question

If an asymmetry of information is removed and laborers' preferences change against employment in a labor market, it would __________ employment and __________ the wage at the equilibrium in the market.

Answer 1

Reduce Employment, Increase Wage rate

Step-by-step explanation:

Labour supply is an upward sloping curve, as labour supplied is directly related with wage rate. Asymmetry of Information is when one economic party has more & superior information than other economic party, in an economic transaction.

Asymmetric Information could be also between employers & employees : Eg 1 - Employee having more information about their capabilities than employers, Eg 2 - Employers having more information about output value of employees work, than employees.

Eg -2 suits the given case : Labourers / Employees preferences change against employment. This could be when labourers learn about the previous asymmetric information of - them being paid much less than value of their production, employers retain all the surplus value for themselves.

This would decrease the labour supply, shift the upward sloping labour supply curve leftwards. It would create excess demand of labour, would create competition among buyers (employers). So, the new equilibrium would be determined at higher wage, less employment.