Midterm Topic 4 Flashcards
obstacles for labor mobility
legal immigration barriers, skill migration barriers (might be more difficult to move skills, like language, recognition of education certificates, etc.), opportunity costs of migration.
four hypotheses for increasing wage skill premium
- Globalization:
a. Migration (input mobility)
b. Trade Liberalization (output mobility)
c. International outsourcing (production mobility) - Skill-biased technological change
What each means for wage skill premium
- Migration and trade liberalization can explain wage skill premium increasing in north, but not in south.
- International outsourcing and skill-biased technolgical change can explain wage skill premium increasing in both regions
Outsourcing: factors that influence a firm’s decision to explain a firm’s decision to produce intermediate goods “in-house” or “out-of-house”
- direct control vs. indirect control “out-house”
- economies of scale
- hold-up problem.
elasticity of relative supply and demand
substitutability of low skilled workers (L) and high skilled workers (S)
relatively elastic relative labor supply
small changes in the wage skill premium result in large changes in ratio of skilled to unskilled workers.
a small change in the wage skill premium incentivizes a larger number of people to become skilled and change the ratio of skilled to unskilled more. (often long-term)
a relatively inelastic supply implies that not many people respond or cannot respond to changes in wage skill premia. (obstacles of education and training…often short term)
what happens if there is a technological change that only affects one sector or affects one sector relatively more than the other sector
the marginal product of labor and the marginal product of capital are affected more in the sector that is more affected, which causes a reallocation of capital from one sector to the other.
