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Unformatted text preview: 5. Explain why the wage distribution is positively skewed. 6. Assume firms pay a high wage (w H ) to high-ability workers and a low wage (wL) to low-ability individuals. Low-ability worker incur a cost of 1 for every period of education (y). For high-ability workers this cost is 1 < α . a) Derive the condition for a low-ability workers that ensures that he will NOT acquire the education necessary to obtain a high paying job. b) Derive the condition for a high-ability workers that ensures that he will acquire the education necessary to obtain a high paying job. c) Use the above conditions to obtain the range of values for y that ensures a separating equilibrium. d) Calculate this range of values for w H =5, w L =2.5, 5 . =...
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- Spring '09
- Wage labour