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Why would wages rise for high-skilled labor?

The graph shows how wages rise for high-skilled labor even though supply increases. The graph has two upward sloping supply curves, two downward sloping demand curves, and two points of equilibrium.
The proportion of workers attending college has increased in recent decades, so the supply curve for high-skilled labor has shifted to the right, from S 0 to S 1 . If the demand for high-skilled labor had remained at D 0 , then this shift in supply would have led to lower wages for high-skilled labor. However, the wages for high-skilled labor, especially if there is a large global demand, have increased even with the shift in supply to the right. The explanation must lie in a shift to the right in demand for high-skilled labor, from D 0 to D 1 . The figure shows how a combination of the shift in supply, from S 0 to S 1 , and the shift in demand, from D 0 to D 1 , led to both an increase in the quantity of high-skilled labor hired and also to a rise in the wage for such labor, from W 0 to W 1 .

What factors would cause the demand for high-skilled labor to rise? The most plausible explanation is that while the explosion in new information and communications technologies over the last several decades has helped many workers to become more productive, the benefits have been especially great for high-skilled workers like top business managers, consultants, and design professionals. The new technologies have also helped to encourage globalization    , the remarkable increase in international trade over the last few decades, by making it more possible to learn about and coordinate economic interactions all around the world. In turn, the rising impact of foreign trade in the U.S. economy has opened up greater opportunities for high-skilled workers to sell their services around the world. And lower-skilled workers have to compete with a larger supply of similarly skilled workers around the globe.

The market for high-skilled labor can be viewed as a race between forces of supply and demand. Additional education and on-the-job training will tend to increase the supply of high-skilled labor and to hold down its relative wage. Conversely, new technology and other economic trends like globalization tend to increase the demand for high-skilled labor and push up its relative wage. The greater inequality of wages can be viewed as a sign that demand for skilled labor is increasing faster than supply. On the other hand, if the supply of lower skilled workers exceeds the demand, then average wages in the lower quintiles of the income distribution will decrease. The combination of forces in the high-skilled and low-skilled labor markets leads to increased income disparity.

Key concepts and summary

Measuring inequality involves making comparisons across the entire distribution of income, not just the poor. One way of doing this is to divide the population into groups, like quintiles, and then calculate what share of income is received by each group. An alternative approach is to draw Lorenz curves, which compare the cumulative income actually received to a perfectly equal distribution of income. Income inequality in the United States increased substantially from the late 1970s and early 1980s into the 2000s. The two most common explanations cited by economists are changes in the structure of households that have led to more two-earner couples and single-parent families, and the effect of new information and communications technology on wages.


A group of 10 people have the following annual incomes: $55,000, $30,000, $15,000, $20,000, $35,000, $80,000, $40,000, $45,000, $30,000, $50,000. Calculate the share of total income received by each quintile of this income distribution. Do the top and bottom quintiles in this distribution have a greater or larger share of total income than the top and bottom quintiles of the U.S. income distribution for 2005?

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Frank, Robert H., and Philip J. Cook. The Winner-Take-All Society . New York: Martin Kessler Books at The Free Press, 1995.

Institute of Education Sciences: National Center for Education Statistics. “Fast Facts: Degrees Conferred by Sex and Race.” http://nces.ed.gov/fastfacts/display.asp?id=72.

Nhan, Doris. “Census: More in U.S. Report Nontraditional Households.” National Journal . Last modified May 1, 2012. http://www.nationaljournal.com/thenextamerica/demographics/census-more-in-u-s-report-nontraditional-households-20120430.

U.S. Bureau of Labor Statistics: BLS Reports. “Report 1040: Women in the Labor Force: A Databook.” Last modified March 26, 2013. http://www.bls.gov/cps/wlf-databook-2012.pdf.

U.S. Department of Commerce: United States Census Bureau. “Income: Table H-2. Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households.” http://www.census.gov/hhes/www/income/data/historical/household/.

United States Census Bureau. 2014. “2013 Highlights.” Accessed April 13, 2015. http://www.census.gov/hhes/www/poverty/about/overview/.

United States Census Bureau. 2014. “Historical Income Tables: Households: Table H-2 Share of Aggregate Income Received by Each Fifth and Top 5% of Income. All Races.” Accessed April 13, 2015. http://www.census.gov/hhes/www/income/data/historical/household/.

Questions & Answers

juxtapose indisputable fact of scarcity
Adebayo Reply
what is opportunity cost?
Opportunity cost is the want sacrificed to satisfy another want.
opportunity cost is a forgone alternative, example if a consumer wants to buy a book Nd a pen but he does not have the money for both then he drops the pen Nd buys the book..... so the pen that he dropped Is the opportunity cost
opportunity cost is the alternative forgone or goods that is left on satisfied in order to satify another want
it is also the satisfaction of a want with the expense of another want
what is surplus value theory
what is the equilibrium quantity
Zinna Reply
differentiate between equilibrium and equilibrium point
Leo Robinson's definition
Adejimi Reply
how is equilibrium defined in financial markets?
Babakura Reply
the concept of it
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Habtamu Reply
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Waqar Reply
economic growth
stock of capital
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Y =C+l
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Tebatso Reply
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explorer Reply
it is a situation in which the supply of an item is exactly equal to it dd .
inder wat condition shld a firm stop production in both short n lungrun ?
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Deji Reply
An indefinite amount of something.
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what is demand
Kaman Reply
in ordinary sense demand means desire
demand in economics means both willingness as well as the ability to purchase a commodity by paying a price an also its actuall purchase
what is absolute advantage
demand refers to the various quantity of goods and services that consumers are willing and able to purchase at a particular period of time all other things been equal
The amount of a good or service that consumers are willing to buy at a particular price.
what is cost pull inflation?
what is utility
what is cost pull inflation?
demand is economic principle referring to a consumer's desire and willingness to pay a price for a specific or service..
utility is the among of certisfaction driving from using a comundity
pull cost of inflation hight population unemployment to some of The country members poor government system
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Ahmadou Reply
state the law of diminishing marginal utility
dt know WATS the answer
mention and explain two Bank I financial institutions and two non baking financial institutions
Onah Reply
wat is demand pull inflation
Tony Reply
Demand-pull inflation is asserted to arise when aggregate demandin an economy outpaces aggregate supply. It involvesinflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve.
Perfectly elastic demand
Abubakar Reply
this is a form of demand where goods are demanded at a constant price
what inelastic demanding
demand of any good demanded more after a certain period. if a commodity prices may high and scarcity of that resources.
cannot demand more
what is cross-elasticity of demand
Miles Reply
cross elasticity of demand is an economic concept that measures the responsiveness in the quantity demand of one good when a change in price takes place in other good
this is responsiveness quantity demanded keeping other factors constant

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