What is meant by the skill-biased technical change explanation of increasing ine
ID: 1208598 • Letter: W
Question
What is meant by the skill-biased technical change explanation of increasing inequality? Explain how the socio-economic status of parents can influence the earnings of their children, and why this is a challenge for equality of opportunity. A worker with an annual discount rate of 5% currently resides in Tucson and is considering whether to remain there or move to Phoenix. There are three work periods remaining in the life cycle. If the worker stays in Tucson, she will earn $40,000 per year in each of the three periods. If she moves to Phoenix she will earn $42,000 per year in each of the three periods. What is the highest (present-value) migration cost she will be willing to incur and still make the move?Explanation / Answer
3. Skilled-biased technical change is when there is shift in production function in favor of skilled labor. This increases the gap between skilled and unskilled laborers. The skilled labors get higher wage and the wage gap between skilled and unskilled labor increases. thus skill-biased technical change increases inequality.
4. Yes the socio-economic status of parents affect the earning of their children. the high income earning father can make available more facilities in terms of development of skills and education required for earning high income. the fathers with low income have limitation and thus can not give all the facilities to their children to get more skilled and efficient.
The studies have found that in extreme cases i.e. very low income earning father and very high income earning father have negligible affect on son's income i.e. they do not influence the earnings of their children much but in between the extremes the correlation was found to be positive. The correlation of children's earnings was high with high-income earning fathers and low with low income earning fathers.
This is a challenge for equality of opportunity as fathers with high income can get more opportunities available to their children in terms of education and exposure as compare to low income earning fathers.
5. A worker has annual discount rate of 5%. To relocate to Phoenix, the highest migration cost that she will be willing to incur would be $6, 000.
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