Post by: Triley39 on Nov 23, 2022
The graph shows the demand for low-skilled labor (DLS), the demand for high-skilled labor (DHS), the supply of low-skilled labor (SLS), and the supply of high-skilled labor (SHS).
Assume that P1=$19.50, P2=$28.00, P3=$32.00, P4=$50.00, Q1=120, Q2=255, Q3=390, and Q4=525. What is the wage differential between low-skilled and high-skilled workers?
◦ $8.50
◦ $30.50
◦ $18.00
◦ $4.00
Post by: furthoh on Nov 23, 2022
Remember, in the labor market workers are suppliers of labor and firms are demanders of labor.
The market equilibrium for low-skilled workers is where the supply curve of low-skilled workers (SLS) intersects the demand curve for low-skilled workers (DLS), at P1=$19.50 and Q2=255.
The market equilibrium for high-skilled workers is where the supply curve of high-skilled workers (SHS) intersects the demand curve for high-skilled workers (DHS), at P4=$50.00 and Q3=390.
Wage differential = equilibrium wage of high-skilled workers - equilibrium wage of low-skilled workers
Wage differential = P4 - P1 = 50.00 - 19.50 = $30.50.