Skill-unskilled Model of Employment.

In the book, there was a skill-unskilled model of employment. Instead, suppose that there are two types of workers: high-skilled and low-skilledworkers. In addition, there is capital being utilized to create goods. To make our lives easy, assume that production is q = L. L K1/2. Onceagain assume that the market is perfectly competitive and that the price is determined by the local market (as opposed to the world market).a) If LL = 8LH, what does this tell us about the relative wage wH / wI?b) Assume the amount of Capital and Labour are all perfectly inelastic, create a diagram for each factor market (i.e. for each type of labour andcapital) and explain what the influence on wage would be if more low-skilled workers were allowed to immigrate.c) How does your answer to the previous question change if only high-skilled workers are allowed to immigrate.d) Does this suggest anything about what you would expect to be happening to wage gaps compared to the average worker? What about theGini coefficient or inequality?CSScanned with CamScanner+ Drag and drop your files or click to browse. ..

Prof. Angela

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