Assume that skilled wages are twice that of unskilled wages

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a. Assume that skilled wages are twice that of unskilled wages, and that half of the population fits into each category, skilled and unskilled. Graph the Lorenz curve and calculate the gini coefficient.

b. Assume that skilled wages become 3x that of unskilled wages, as demand for skilled workers increases due to new technology. The population breakdown into skilled and unskilled remains the same. Graph the new Lorenz curve and calculate the new gini coefficient.

c. Assume now that there is a supply response to the higher skill premium, in that the fraction of skilled workers goes up from one half to two thirds of the population. Also, given the increased supply of skilled workers and decreased supply of unskilled workers, the ratio of skilled wages to unskilled wages drops to 2.5. Graph the new Lorenz curve and calculate the new gini coefficient.

d. What has happened to inequality according to the Lorenz criterion? According to the gini coefficient? Are all comparisons unambiguous?

Reference no: EM13978541

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