1. Suppose that the wage distribution for Riverside is given below: Sector Number of Workers Wage $10 (per hour) $5 А 40 B 30 C 30 $5 a. Compute the level of wage inequality for the town using the 90th / 10th percentile ratio and the 90th / 50th and 50th /10th ratios. (Yes, the computation is simple. Don't over-think it.) b. Assume a minimum wage law is passed that doesn't affect the market in the high- wage sector A but boosts wages to $7/hour in sector B, the covered sector, while reducing employment to 20 in that sector. Displaced workers in sector B move into the uncovered sector, C, where wages fall to $4.50 per hour as employment grows to 40. Has wage inequality risen or fallen? Does your answer change depending on the measure of wage inequality you use?

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1. Suppose that the wage distribution for Riverside is given below:
Sector
Number of Workers
Wage
$10 (per hour)
$5
А
40
B
30
C
30
$5
a. Compute the level of wage inequality for the town using the 90th / 10th percentile
ratio and the 90th / 50th and 50th /10th ratios. (Yes, the computation is simple.
Don't over-think it.)
b. Assume a minimum wage law is passed that doesn't affect the market in the high-
wage sector A but boosts wages to $7/hour in sector B, the covered sector, while
reducing employment to 20 in that sector. Displaced workers in sector B move
into the uncovered sector, C, where wages fall to $4.50 per hour as employment
grows to 40. Has wage inequality risen or fallen? Does your answer change
depending on the measure of wage inequality you use?
Transcribed Image Text:1. Suppose that the wage distribution for Riverside is given below: Sector Number of Workers Wage $10 (per hour) $5 А 40 B 30 C 30 $5 a. Compute the level of wage inequality for the town using the 90th / 10th percentile ratio and the 90th / 50th and 50th /10th ratios. (Yes, the computation is simple. Don't over-think it.) b. Assume a minimum wage law is passed that doesn't affect the market in the high- wage sector A but boosts wages to $7/hour in sector B, the covered sector, while reducing employment to 20 in that sector. Displaced workers in sector B move into the uncovered sector, C, where wages fall to $4.50 per hour as employment grows to 40. Has wage inequality risen or fallen? Does your answer change depending on the measure of wage inequality you use?
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