Assume that the wage-skill level relationship in oneâ€™s home country W(H) and i

ID: 1188140 • Letter: A

Question

Assume that the wage-skill level relationship in oneâ€™s home country W(H)

and in the United States W(US) is given by the equations below.

W(H) = 500 + 2S

W(US) = 325 + 2.5S,

where W is the wage and S is the skill level.

a. By making reference to a numerical value for skill level, determine

which workers will have an incentive to migrate to the United States. Is

this evidence of negative or positive selection? Explain.

b. Now suppose that it costs $20 to migrate to the United States. Who will

migrate to the United States? What has happened to the skill level of

those who elect to migrate? What has happened to the average skill level

in the home country? Why?

W(H) = 500 + 2S

W(US) = 325 + 2.5S

Workers will have an incentive to migrate to the United States if,

W(US) > W(H)

325 + 2.5S > 500 +2S

0.5S > 175

S > 350

Worker with skill level greater than 350 will have the incentive to migrate.

b) Cost to migrate =$20

Hence worker with W(US) > W(S) + 20

325 +2.5S > 500 +2S + 20

0.5S > 195

S > 390

Worker with skill level greater than 390 will have the incentive to migrate.

Average skill level has increased to 390 for those who decide to migrate.

Average skill level of country would decrease because of migration to US.

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