3.0 Figure 2. Average Earnings of Full-Time, Year-Round Workers as a Proportion of the Average Earnings of High School Graduates by Educational Attainment: 1975 to 1999 Average earnings as a proportion of high school graduates' earnings 2.5 2.0 1.5 1.0 0.5 Advanced degree Bachelor's degree Some college or associate's degree High school graduate Not high school graduate 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Source: U.S. Census Bureau, Current Population Surveys, March 1976-2000.
As indicated in the attached image, U.S. earnings for high- and low-skill workers as measured by educational attainment began diverging in the 1980s. The remaining questions in this problem set use the model for the labor market developed in class to walk through potential explanations for this trend.
1. Assume that there are just two types of workers, low- and high-skill. As a result, there are two labor markets: supply and demand for low-skill workers and supply and demand for high-skill workers. Using two carefully drawn labor-market figures, show that an increase in the demand for high skill workers can explain an increase in the relative wage of high-skill workers.
2. Using the same assumptions as in the previous question, use two carefully drawn labor-market figures to show that an increase in the supply of low-skill workers can explain an increase in the relative wage of high-skill workers.
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