In this question, we’ll analyze the labor market for IT workers in the Silicon Valley. Suppose...

In this question, we’ll analyze the labor market for IT workers in the Silicon Valley. Suppose the labor market is perfectly competitive and it is characterized by a downward sloping and upward sloping supply curves.

(a) Draw the graph for this market. Mark the equilibrium wage and employment and unemployment.

(b) Is the outcome efficient? Why? Mark any DWL. Suppose all the IT firms unite into an employers’ organization and coordinate their actions in the labor market so that now they behave as a single employer.

(d) Marktheequilibriumwageandemploymentandunemploymentunderthisassumption.

(e) Is the new outcome efficient? Why? Mark any DWL. Suppose the labor market is back to perfect competition. Soon, the US Congress may vote a new bill increasing the annual cap of available H1-B visas. Those are visas for temporary skilled workers and the IT industry is one of the largest users (in 2013 they counted for about 70% of all H1-B visas requested).

(f) Steve, currently employed in the IT industry, is strongly against the bill. He argues “The increase in H1-B visas will lower our wages and make us worse off.” Is he correct? Explain in words and graphically.

(g) Tim disagrees with Steve: “Working with people from different countries and backgrounds improves my creativity and helps me find new ideas. I don’t think the increase in H1-B visas will necessary imply lower wages”. Under what assumption is this scenario possible? Explain the reasoning in words and graphically.

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Rahul Sunny answered 1 month ago

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