Suppose labor demand for low-skilled workers in the United States is w = 24 - 0.1L...

Suppose labor demand for low-skilled workers in the United States is w = 24 - 0.1L where L is the number of workers (in millions) and w is the hourly wage. There are 120 million domestic U.S. low-skilled workers who supply labor inelastically. If the U.S. opened its borders to immigration, 20 million low-skilled immigrants would enter the U.S. and supply labor inelastically.

Draw a clearly labeled graph showing the equilibrium before immigration and the effect of opening the borders. (The equilibrium wage and employment level should be labeled both before and after immigration.)

Solutions

Expert Solution

Using graph,

Also as mentioned in the question, labor supply is inelastic, thus we have drawn labor supply curve much vertical.

We see before immigration equilibrium at labor = 120 and wage rate = 12.

When immigration opens, labor supplu increases, shifting labor supply curve rightwards to S'. Thus new after immigration equilibrium be at L =140 (Existing + new), and wage rate = 10.

Rahul Sunny answered 1 year ago

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