Recent immigration has increased the number of low-skilled workers with little impact upon the supply of highly trained workers. A recent study by George Borjas, Richard Freeman, and Lawrence Katz estimated that the wages of high school dropouts declined by 4 percent relative to the wages of college graduates in the 1980s as a result of immigration and trade.
a. To see the impact of immigration, turn back to Figure 12-6 in the previous chapter. Redraw the diagrams, labeling part (a) "Market for Skilled
Workers" and part (b) "Market for Unskilled Workers." Then let immigration shift the supply of unskilled labor to the right while leaving the supply of skilled workers unchanged. What would happen to the relative wages of the skilled and unskilled and to the relative levels of employment as a result of immigration?
b. Next analyze the impact of international trade on wages and employment. Suppose that globalization increases the demand for domestic skilled workers in (a) while reducing the demand for domestic unskilled workers in (b). Show that this would tend to increase the inequality between skilled and unskilled workers.