Case Study: The Effect of Wages on Labor Supply and Unemployment

From a student email:

I am an Ec 1010b student and proud alumnus of Ec 10. In fact, I enjoyed Ec 10 so much that in addition to concentrating in economics, I have chosen to tutor the course. That's where the story begins.

Last term, the Bureau of Study Counsel paid $12/hour for one-on-one peer tutoring. They were short on tutors (particularly in Ec10) and made frequent pleas to former Ec10 students to tutor the course. When they have a tutoring job, they send out the offer over an e-mail list to those signed up to tutor. It sometimes took a long time to assign tutors to students due to the lack of interested tutors.

This term, they raised the pay rate to $14/hour and all tutoring jobs are snapped up in minutes. I myself am hoping to tutor a student or two, but I have not replied to any of the e-mails quickly enough; I guess you could say that I'm unemployed. Just thought it was interesting to see how one of the basic Ec10 ideas (raising the minimum wage creates unemployment) is at work right here on campus.

Obviously, they have gone a little too high with their pay raise. Maybe they should have run the change by an economist before taking action.

Update: Another student email me an alternative hypothesis:

As a former Ec10 and 1010 alumnus (and current ec1545 student) myself, I have to respond to email that the student sent you on your blog. Put briefly, first we should consider other variables - perhaps the tutors enjoy macro more as a whole, and therefore the supply of macro tutors is greater; also, since it is still near to the beginning of the term, there have been seemingly fewer requests for ec 10 tutors than last semester (though I admittedly have not kept track). I think the unmet demand of last semester was most noticeable during reading period, actually, when both the demand for tutoring increases and the supply decreases. The student probably remembers these pleas the most, but during the first half of the semester, I think the market cleared pretty well.

Besides, we would predict that tutors of all subjects would respond to the pay raise similarly. I notice that physical sciences tutoring jobs and a certain intro-math tutoring jobs still take some time to clear, and often they need to be re-posted. This may support my previous hypothesis - these classes have had midterms recently, so the demand for these tutors has likely been higher.

All said, I don't view the tutoring jobs as employment or unemployment, or $2 more or $2 less. I just want to teach. But perhaps some people respond to the wage raise differently from me.