Answer to Question #83056 in Microeconomics for Harpreet

Question

1) One of the most striking changes in the personal distribution of income has been the widening gap in the earnings between skilled and unskilled workers. Discuss some of the factors that could explain the growing inequality between these two groups.
2) How would each of the following affect Helena’s labour supply decision? Be specific on what happens to her individual labour supply curve.
a) The value of Helena’s home triples in an unexpected hot real estate market.
b) Originally an unskilled worker, Helena acquires skills that give her access to a higher-paying job.
c) A temporary income tax surcharge raises the percentage of her income that she must pay in taxes.

Answer 1

1) One of the main reasons why there is the widening gap in the earnings between skilled and unskilled workers is that the demand for unskilled workers decrease and demand for skilled workers increase. This occurs due to improvements in technology, the increasing use of machines, regular change of skills needed etc.

2) How would each of the following affect Helena’s labour supply decision? Be specific on what happens to her individual labour supply curve.

a) The value of Helena’s home triples in an unexpected hot real estate market - her individual labour supply curve will shift to the left.

b) Originally an unskilled worker, Helena acquires skills that give her access to a higher-paying job - her individual labour supply curve will shift to the left.

c) A temporary income tax surcharge raises the percentage of her income that she must pay in taxes - her individual labour supply curve will shift to the right.