Question

Data on the education levels of immigrants in canada suggest that illegal immigrants tend to be less educated while legal immigrants are generally highly educated. Including workers with varying skill levels (low, medium and high) in the standard specific factors model (capital and land specific factors) implies that, for the majority of canadian workers (mid-level education), increased education is likely to: a) cause an increase in their wages b)cause a decrease in their wages c) hav minimal impact on their wages. Briefly Explain.

Answer 1

The answer is a i.e. increase eductation is likely to cause a increase in their wages.

If standard specific factors model is assumed to be true, labor is a mobile factor. If the production in one of the industries increases, more labor is required for that specific industry and the wages of the labor decreases. Marginal product of labor (or any other input) declines as more is employed However,  skilled workers is a specific factor in the specific factors model.

With increased education, the laborers can become skilled workers, who are specific to an industry. Therefore, the law of deminishing wages with increase in production will not apply to them. Therefore, the net wages of the workers will increase.

Also, the wages are dependant of the skill levels of the workers. Due to education, the workers can increase their skill level leading to increased wages.