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Explain a situation using the supply and demand for skilled labor in which the increased number...

Explain a situation using the supply and demand for skilled labor in which the increased number of college graduates leads to depressed wages. Given the rising cost of going to college, explain why a college education will or will not increase income inequality.

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Answer #1

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Increase in the number of college graduates, in the labor market, will increase the supply of skilled workers. It will make supply curve to shift to the right. As a result, wage level will decrease and more jobs will be there for the workers. It creates depressed wage scenario in the labor market. Here, W1 is less than W and it is the result of depressed wages.

The inequality level will decrease, because more number of college graduates joining the labor market, will decrease the wage level. but, wage level of unskilled workers will either remain same or increase. Hence, the gap between the skilled worker and non-skilled workers, will decrease and it will lead to the decrease in inequality of income.

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