Question

4. Using the relative demand and supply model, explain the impact of the following factors. In doing so, explain first which curve(s) would move and in which direction and second the impact on the equilibrium relative wages and employment. a. Increase in imports produced with low-skilled labor and increase in exports of goods produced with highly skilled labor. b. Greater use of technology in the work place that requires greater human capital

Answer 1

a) Due to increase in the imports of goods produced by low- skilled labor would increase the employment of unskilled labor and increase in export of goods produced by skilled labor would increase employment of skilled labor . Overall effect on unemployment would be ambiguous depending upon the intensity of import and export changes. While the wages of skilled labor would increase relative to unskilled labor.

b) when technology improves it reduces the demand of unskilled labor who was indulged in the manual work which increases unemployment more than deduction in unemployment due to the increase in demand for human capital. Over unemployment increases . And again the wages of skilled labor would increase relative to unskilled labor.