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1. In the US, the wage-skills relationship in the labor market before government intervention is wus=100+0.4s, where s is the number of "efficiency units of skill" and w is the weekly wage. In Canada, the wage-skills relationship is WC=250 + 0.2s.

a. Draw the wage-skills relationships for the 2 countries on a graph. Will immigration from Canada to the US be positively or negatively selected? Where will the skill cutoff be between immigrants and non-immigrants in Canada (i.e. what value of s)?

b. Now suppose the US creates a welfare program that imposes a weekly wage floor of $280 (i.e. it provides a subsidy for any worker that earns less than $280 per week that brings them up to that level). Draw the wage-skills relationship for the US and Canada on a graph. What happens to migration from Canada to the US? Who will migrate? What are the new cutoffs?

Microeconomics, Economics

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