South-Western College Publishing - Economics  
The Army Is Not All That It Could Be
Subject Disequilibrium
Topic Labor Markets
Key Words Shortfall, shortage, labor market, benefits, training
News Story

The Army is experiencing a severe shortfall in new recruits. In 1999, the shortage was 6,290 recruits. This year the Army needs to recruit 80,000 people to reach its target employment level of 465,000.

The problem is the tight labor market. Companies are now offering many of the same benefits that the Army does. However, the Army still offers more training than most employers.

As a result, the Army is changing its ad agency. It wants to pay the new agency according to the success of its ads. It believes that the sales pitch needs to be tailored to different segments of the population. Concurrently, the Army proposes to develop new programs to help high-school dropouts complete high-school equivalency programs so that they are eligible for the Army.

(Updated February 1, 1999)

Questions
1. a) Draw a supply and demand diagram of the labor market for high-school graduates. The vertical axis should represent the real wage rate including benefits, and the horizontal axis should represent the level of employment. To the right, draw a diagram of the demand of the Army for high-school graduates. In a relatively competitive labor market such as this, what characterizes the elasticity of the Army's labor supply curve? Explain and add the curve to your diagram.
  b) What real wage rate should the Army pay to recruit the equilibrium number of graduates?
  c) In fact, there is a disequilibrium because the Army is experiencing a shortfall in recruits. Mark a real wage level that the Army might be paying which would lead to a shortage. Show the disequilibrium that exists at the current wage being paid.
  d) The Army complains that private sector employers are offering better benefits than they did previously. Explain how this might have caused the disequilibrium. Refer to your diagram and your previous responses.
2. a) One idea is better focused advertising by the Army. How would this diminish the disequilibrium? Illustrate on a new diagram of the Army's supply and demand for high-school personnel.
  b) A second plan is to set up high-school equivalency education programs. How would this help resolve the shortage?
  c) What else could the Army do to eliminate the shortage? Think about how other curves and lines on your diagram might be shifted.
Source John J. Fialka, "Enlistments Off, Army Will Recruit a New Ad Firm," The Wall Street Journal, January 7, 2000.

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