The increased use of robotics has been linked to a greater gap in earning between shareholders...

The increased use of robotics has been linked to a greater gap in earning between shareholders (including top managers who receive stock bonuses) and lower-skilled workers. Use a demand and supply diagram to illustrate the impact of robotics on the earnings and employment of low-skilled workers. Why would this increase the earnings gap?

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Expert Solution

Use of robotics requires skilled labor and increases the demand for skilled labor, shifting demand curve for skilled labor leftward, increasing wage rate, earnings and employment of skilled workers. As a result of increase in demand for skilled labor, the demand for unskilled labor decreases, shifting demand curve for unskilled labor leftward, decreasing wage rate, earnings and employment of lower skilled workers. Since wage rate (earnings) of skilled workers increases and wage rate (earnings) of unskilled workers decreases, the wage gap (difference in wage rate/earnings) increases.

In following graph, wage rate (P) and quantity of unskilled workers (Q) are measured vertically and horizontally respectively. D0 and S0 are initial demand and supply curves of labor intersecting at point A with initial wage rate P0 and quantity of labor Q0. As labor demand falls, D0 shifts left to D1, intersecting S0 at point B with lower wage rate P1 and lower quantity of labor Q1. There is an unemployment equal to (Q0 - Q1).

Rahul Sunny answered 1 year ago

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