Graph walkthrough · Micro · Labor market

A wave of retirements

A large cohort of experienced nurses retires in the same year.

Quantity of laborWage0DSE₀

Step 1 of 3 · Before the retirements

Nurses earn 40 dollars an hour and 80 thousand are employed. The horizontal axis is the number of nurses employed. The vertical axis is the hourly wage. The market is at E₀.

The chain in words

  1. Step 1

    Before the retirements

    Nurses earn 40 dollars an hour and 80 thousand are employed. The horizontal axis is the number of nurses employed. The vertical axis is the hourly wage. The market is at E₀.

  2. Step 2

    Labor supply shifts left

    Retirement removes workers at every wage, so labor supply shifts left. At the old wage of 40 dollars, hospitals want more nurses than are willing to work: a shortage.

  3. Step 3

    The wage rises, employment falls

    Hospitals raise pay to fill shifts. At the higher wage, hospitals hire fewer nurses than they wanted at the old wage, a movement along the labor demand curve. The market settles at E₁: a higher wage and fewer nurses employed.

Takeaway. A fall in labor supply raises the wage and lowers employment.

Draw it yourself

This shock: draw the graphA minimum wage is setRobots enter the warehouseImmigration adds workers

More on the labor market graph

A minimum wage above the marketRobots in the warehouseImmigration and the labor supplyHigher output prices, more hiring

Go deeper

Lesson: The Leisure-Work Trade-Off

The walkthrough shows the chain. The lesson explains why each link holds, with worked examples and practice questions that remember what you get wrong.
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