Question

There is evidence that, other things equal, a 10 percent increase in the number of workers having a particular skill level leads to about a 4 percent decline in wages for workers with that skill level. In addition, this 10-to-4 ratio appears to hold true whether the increase in labor supply is caused by domestic changes in labor supply or by an influx of foreign Immigrants. Instructions: Round your answers to 2 decimal places. a. Suppose that 84.000 computer programmers work in Silicon Valley. If the number of computer programmers in Silicon Valley increases by 20,160 because of a change in U.S. Immigration laws, by how many percentage points would you expect the wage of computer programmers to fall in Silicon Valley? percent b. Suppose that 16,000 full-time cooks work in restaurants in the Denver area. If Denver becomes popular both with U.S. citizens and with foreigners such that 1,300 full-time cooks move to Denver from other parts of the United States while 1.160 full-time cooks move to Denver from other countries, by how much would you expect the wages of full-time cooks to fall in Denver? percent

Answer 1

A. % Change in number of programmers = 20,160/84000 => 24%.

Also 10% increase in number of workers leads to 4% decline in their wages. Therefore ratio of wages to workers change in (4/10) = 0.4.

Hence Change in wages due to 24% increase in programmers = 24*0.4 = 9.6% fall in wages of programmers.

B. Change in denevr's workforce = 1,300 + 1,160 => 2,460

In % terms change in workforce = 2460/16000 *100 =15.375%

Hence Change in wages due to 2=15.375% increase in workforce = 15.375*0.4 = 6.15% fall in wages of workforce.

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