Question

California's restaurant industry employs dishwashers and chefs. Immigrant workers from Central America generally lack training to work as chefs but can wash dishes.

Standard neoclassical labor supply and demand, what will be the effect on the wages of California dishwashers if civil strife drives uneducated workers to leave Central America for the United States?

What would the effect of this strife be on wages for restaurant chefs? Why the difference?

Answer 1

When unskilled immigrants from central America shift to California for the job of dishwashing in restaurants, it will increase the supply of unskilled labour as dishwasher.

* According to Standard Neo Classical model, the wage rate of labour is determined as per the joint action of market forces of demand and supply of labor. The neo classical Economists state that labour market act as per the same line of goods market to determine Equilibrium rate of wages for labour.

* The demand for labour depends on the marginal Revenue Product of labour(MRP) and supply of labour depends upon the marginal factor ( resource) cost ( MFC) of labour.

* The equilibrium wage rate is thus determined where ------

MFC=MRP

* When more unskilled labour enter the dishwasher market, due to increased demand, the increase in supply of labour is more than the demand for labour .so the Equilibrium wage rate will fall.

See the graph (1) -----for unskilled labour employed as dishwasher.

- we observe that initially Equilibrium Point (E)occurs ,where Ql is quantity of dishwashers in California.and W is Equilibrium wage rate.

- with the increase in demand for labour ,( dishwasher), the demand curve shifts upward, but due to huge immigration of unskilled labour , the supply of dishwashers becomes more than that of demand .As a result , the wage rate falls.(W¹)

* Now see the graph (2)----

- It belongs to the supply and demand for chefs in restaurants in California.

- Initial equlibrium point E determines Equilibrium wage rate for chefs as W.

- when demand for chefs Increases, , DL curve shifts rightward ( upward), but Supply Curve remains the same .

- Due to this , the new Equilibrium wage rate is determined as W¹, which is higher than the earlier wage rate .

* REASON FOR THE DIFFERENCE IN WAGES-------

- Wage difference exist , because the MRP of an unskilled labour ( dishwasher) is much less than the MRP of a skilled labour ( chef).

- To become a chef, it takes a lot of education and training which costly while a dishwasher needs a comparatively lesser training .

- Demand for skilled labour is inelastic because a firm is ready to give higher wages to attract the profession.

Hope ,it will help.

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