problem 1 Due in class, October 15, 2015 Full credit requires full explanations!
ID: 1190718 • Letter: P
Question
problem 1 Due in class, October 15, 2015 Full credit requires full explanations! Home produces fish using unskilled labor (U) and capital (K) and computers using skilled (S) and (U). Unskilled labor is mobile between industries. Capital and skilled labor arc specific to their industries. Goods prices are fixed on world markets, Suppose that Home experiences an inflow of unskilled workers. How does this inflow affect the real wage paid to skilled and unskilled labor? Now suppose instead that Home experiences an inflow of skilled workers. How does this inflow affect the real wage paid to skilled and unskilled labor?Explanation / Answer
1a) If home experiences inflow of unskilled workers then the wages of unskilled labor will fall, but it can be beneficiary for skilled worker as prices will fall and and this will give an increase in real wage of skilled labor due to income effect (which will not be the case here for skilled workers as prices are fixed)
1b) Inflow of skilled labor will make a difference in real wages of skilled worker but not a substantial one because changing a skilled employee is not so easy for employers as there is a lot of training cost involved, There might be other issues also for immigrants lihe various licences, certifications, etc. needed to work in Home. While the wages of unskilled labor will remain same.
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