Hypotheses to explain changes in wage inequality
Business Economics
Below are four hypotheses to explain changes in wage inequality in the United States between 1970 and today. For each of the four hypotheses, indicate (1) whether it predicts an increase or decrease in wage inequality and (2) give one reason why it cannot account for all of the changes in wage inequality between 1970 and today (think about different measures of inequality, such as the 90-50 differential and the 50-10 differential). For parts (a), (b), and (c), use a graph of the supply and demand for skilled labor relative to unskilled labor to illustrate your answer. (2 points each)
a) The number of college graduates in the economy has increased relative to the number of high school dropouts.
b) There has been an increase in international trade, leading to an increase in the number of imports from low-wage countries.
c) Skill-biased technological change has made high-skilled workers more productive relative to low-skilled workers.
d) The real value of the minimum wage fell during the 1980s.
