Question

Demand and Supply in Labor Markets

As the text suggests, the demand and supply model predicts that the new computer and communications technologies will raise the pay of high-skill labor but reduce the pay of low-skill labor. Explain how this works using the four-step process.

Answer 1

. The four steps are as follows: 1 Development of new computer & communication technologie Development of new computer & communication technologies transform the production process & will make it more knowledge based white & traditiona processes decline. (2) Impact on Labor market As the peroduction pewness becomes more knowledge based, the fign, will require makers with requisite she skills. Thus, demand for tigh labon will maease. (3) Specific impact on market for high tabor skill labor The increase in market for high stilled labor will result in an increase in wage rate & employment in market fa high-skill labon. Thus, pay for Tigh-skill Sabun millouse. G Specific Impact on market for low-still laban Decrease in demand for low-still labon will result in a decrease in wage rate & employment in market for low-still labon. Thus, pay of low-skill labea will fall.