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quiz_3_ans - Quiz 3 Econ 151B Fall 2005 One explanation for...

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Quiz 3 Econ 151B Fall 2005 One explanation for the recent rise in earnings inequality is that the adoption of new technologies like the computer has reduced the demand for low-skilled workers. Computers may enhance the productivity of high skilled workers, but end up being substitutes for low-skilled labor. In order to test this hypothesis, one researcher we studied in class compared earnings of those who use a computer at work to earnings of those who do not, and found that those who used a computer at work had earnings that were 20% higher than those who did not. a) The researcher concludes that there is a 20% wage premium to computer skills. Why is this conclusion likely to be false? (5 points) Because people who use computers at work may be different from people who don’t use computers at work in other ways. Thus, the wage differences may reflect the differences in those other skills. Or, the wage premium may reflect the fact that the types of jobs that tend to involve computers tend to have higher wages than the types of jobs that do not involve computers.
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