In most states, there is a mandatory maximum number of children allowed per day care worker. If this maximum number is binding, then if the wages of day care workers goes up, the main effect on day care employment will be through

Question

Quizplus · Accepted Answer

The scale effect refers to the change in the quantity of labor demanded due to a change in the output price. In this case, the output price is the cost of day care services. If the wages of day care workers go up, the cost of day care services will also go up. This will lead to a decrease in the demand for day care services, and thus a decrease in the demand for day care workers.

In Most States, There Is a Mandatory Maximum Number of Children