Economics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 25

Leo runs a bicycle repair shop. He recently examined information on wage and employment levels and noted that he employs the same number of workers today that he employed in 2009. However, wages (controlling for inflation) increased quite substantially between 2009 and 2013. Assume the supply of labor remained constant over this time period. Give two possible explanations for why Leo's workers are paid more in 2013.