Question

Explain in detail how (1) immigration and trade may worsen wage inequality, and how (2) college education may mitigate against that.

Answer 1

Increased trade could worsen income distribution across the world. When you bring in immigrants into countries the low-skill labor force grows and if Trade tends to increase the demand for skilled workers relative to unskilled workers, thus worsening wage inequality. Immigration of unskilled workers decreases the supply of skilled workers relative to unskilled workers, thus worsening wage inequality. Alternatively, college education increases the supply of skilled workers relative to unskilled workers, thus reducing wage inequality.