Question

1.True or false? Evidence suggests that in the United States an increase in the supply of skilled labor relative to unskilled labor has contributed to an increase in inequality. Other factors, such as such as globalization and skill-biased technical change, have also contributed to rising inequality.

2.True or false? While the Ricardian model predicts that there will be wage di§erences in the world as a result of di§erences in technology, the speciÖc sector model suggests that wages should equalize as a consequence of international trade.

Answer 1

1. The correct answer is true.

In the United States an increase in the supply of skilled labor relative to unskilled labor has indeed contributed to an increase in wage and income inequality.

Especially after 1990s and arrival of internet, technology has led the economic growth in the country. However, technology required more skilled workers than unskilled ones due to technology-skills complementarity, leading to higher wage growth for skilled workers. Likewise, globalization has caused moderate-paying manufacturing jobs almost non-existent in the country, as developing nations used cheap labor to produce goods. thereby leading to huge wage differentials.

2. The correct answer is true.

Ricardo who was a classical economist believed that technology decided real output or wage change, whereas specific sector model emphasized on mobility of factor which led to wage equalization in two different nations.