Suppose that there has been a sudden influx of refugees into a country. Which of the following is the most likely immediate effect on the country's labor market, assuming other factors remain constant?

• A. No change in the labor market, as refugees do not affect supply or demand
• B. A decrease in demand for goods and services, resulting in higher unemployment
• C. An increase in the supply of labor, potentially leading to lower equilibrium wages
• D. A decrease in the supply of labor, causing wages to rise

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the labor market framework, which consists of labor supply and labor demand curves. The labor supply curve represents the number of workers willing to work at different wage levels, while the labor demand curve represents the number of workers firms want to hire at those wages.
2. Step 2: Analyze the effect of a sudden influx of refugees on the labor supply. Refugees entering the country and seeking employment increase the number of workers available, which shifts the labor supply curve to the right (an increase in labor supply).
3. Step 3: Consider the assumption that other factors remain constant, meaning labor demand does not change immediately. With labor demand unchanged and labor supply increased, the new equilibrium will be at a lower wage and higher quantity of labor employed.
4. Step 4: Recognize that this shift leads to a potential decrease in the equilibrium wage rate because more workers are competing for the same number of jobs, which can put downward pressure on wages.
5. Step 5: Conclude that the most likely immediate effect is an increase in labor supply, potentially leading to lower equilibrium wages, rather than changes in labor demand or no change at all.