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Assume that the wage-skill level relationship in oneâ€TMs home country W(H) and in the United States W(US) is given by the equations below.
W(H) = 500 + 2S
W(US) = 325 + 2.5S,
where W is the wage and S is the skill level.
a. By making reference to a numerical value for skill level, determine which workers will have an incentive to migrate to the United States. Is this evidence of negative or positive selection? Explain.
b. Now suppose that it costs $20 to migrate to the United States. Who will migrate to the United States? What has happened to the skill level of those who elect to migrate? What has happened to the average skill level in the home country? Why?
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