Question

7) Consider the markets for low-skilled and high-skilled labor in the United States. Draw two graphs how each of the following is likely to affect the wages of low-skilled workers relative to high-skilled workers.

1. a) Suppose that the government decided to approve more H-1B visa for high-skilled workers. In other words, more high-skilled workers come to the U.S. from foreign countries.

2. b) The aging of the U.S. population increases the demand for services such as home health care, home maintenance, transportation, and packaged food preparation that employ low- skilled workers.

Answer 1

7)a. In the first case there will be market for high skilled labour. Due government decision of providing and approve H-1B for high skilled labour there will be increase in supply of high skilled labour in US from foreign countries and this will lead to shift in supply of high skilled labour and in the following diagram we have shown it. In the figure we have shown the initial equilibrium wage and labour was W1 and L1. Due to increase in supply of high skilled labour the supply curve shifted rightward and as a result of this the equilibrium wages fall to W2 and labour supply increases to L2.

b) In the second case there has been said market of low skilled labour and as a result of increase in different services like health care, home maintenance the demand for low skilled labour increased. As demand for low skilled labour increased the demand curve of low skilled labour will shift rightward. In the following figure we have shown the scenario. As a result of more demand of low skilled labour the labour demand curve of low skilled labour shifted rightward. As a result of shift in labour demand towards right the equilibrium wages has increased from W1 to W2. The amount of low skilled labour has increased from L1 to L2.

The two facts of two different market for labour has been shown. In one market ( high skilled) labour supply has increased and in another market (low skilled) labour demand has increased. In first case wage falls because of more supply and in second case wage increases due to higher demand of labour.