There is evidence that other things equal a 10 percent incre

There is evidence that, other things equal, a 10 percent increase in the number of workers having a particular skill level a 4 percent decline in wages for workers with that skill level. In addition, this 10-to labor supply is caused by domestic changes in labor supply or by an influx of foreign immigrants 4 ratio appears to hold true whether the increase in Instructions: Round your answers to 2 decimal places. a. Suppose that 42,000 computer programmers work in Silicon Valley. If the number of computer programmers in Silicon Valley ncreases by 1,260 because of a change in U.S. immigration laws, by how many percentage points would you expect the wage of computer programmers to fall in Silicon Valley? percent b. Suppose that 8,000 full-time cooks work in restaurants in the Denver area. If Denver becomes popular both with U.S. citizens and with foreigners such that 400 full-time cooks move to Denver from other parts of the United States while 480 full-time cooks move to Denver from other countries, by how much would you expect the wages of full-time cooks to fall in Denver? percent

Solution

Wage Elasticity = % change in wages / % change in workers = -4%/10%

Wage Elasticity = -.4

A.

-.4 = % change in wages of computer programmers / % change in number of computer programmers

% change in number of computer programmers = 1260/42000 = 3%

So,

-.4 = % change in wages of computer programmers / 3%

% change in wages of computer programmers = -1.2%

So, % point of fall in wage = 1.2%

B.

% change in number of cooks in Denver = (400+480)/8000 = 11%

So,

Wage elasticity = % change in wages / % change in numbers of cooks

-.4 = % change in wages / 11%               

% change in wages = -4.4%

So, % of fall in wage = 4.4%