For equilibrium we need that 4 l o 8 l d 2 l o l d 6

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For equilibrium we need that: 4-L o =8-L d -2 L o +L d =6
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University of California, Davis Santiago Perez Economics Winter 2018 Name: _____________________________ ID:_________________________________ 9 4-(6-L d )= 8-L d -2 2L d =8 L d =4 Which implies that 1 worker moves from the origin to the destination. Hence, we have: W o =4-2=2 W d =8-4=4 c. How much do owners of other factors of production in the Origin country gain/lose due to immigration? The wage in the origin used to be equal to 1 with no migration, and it’s equal to 2 with migration. Labor demand in the origin is equal to: 4-L o The surplus of owners of other factors of production is equal to the area (triangle) below the demand curve and above the wage that they pay Hence, the change in surplus is given by: 2*2/2-3*3/2=-2.5. That is, owners of other factors of production lose 2.5 The government in the Destination country is concerned that immigration might result in lower wages for native workers. To address this issue, they decide that they will impose a tax on owners of other factors of production in the Destination, and will use the money that they collect from this tax to compensate workers in the Destination. d. How much money does the government in the Destination would need to collect to fully compensate native workers? There are 3 natives workers. Each of them was making 5 without immigration, but is making 4 with immigration. Hence, the government would need to collect 3 to fully compensate them. e. Are owners of other factors of production in the Destination (who, remember, will be taxed so as to fully compensate native workers) likely to be in favor or against free immigration in this scenario? Why? Based on the answer in part d., owners of other factors of production would be taxed by an amount of 3 so as to fully compensate workers. Hence, whether they are likely in favor or against depends on whether the change in their surplus is below or above 3.
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University of California, Davis Santiago Perez Economics Winter 2018 Name: _____________________________ ID:_________________________________ 10 The wage in the destination used to be equal to 5 with no migration, and it’s equal to 4 with migration. Labor demand in the origin is equal to: 8-L o The surplus of owners of other factors of production is equal to the area (triangle) below the demand curve and above the wage that they pay Hence, the change in surplus is given by: 4*4/2-3*3/2=3.5 Hence, they are likely to be in favor since, even after compensating workers, they are still enjoying a higher surplus than without immigration. [4 points each, total of 12 points]. Data analysis A group of researchers is interested in measuring the extent to which refugees who entered the US in 2000 have “caught-up” with natives in the labor market by the year 2010. To conduct their analysis, they have access to earnings data from the 2000 and 2010 US Censuses of Population. The group of researchers found that average earnings in the 2000 and 2010 Censuses looked like in the following table: Group Average earnings in 2000 Census ($) Average earnings in 2010 Census ($) Refugees who entered the US in 2000 700 900 Natives 900 900
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