Economics 40 Homework #4 1. In 1990, the relative wage (Wus/WMEX) was equal to 4. In 2019, the relative wage was equal to 3. In 1990, 75,000 migrants arrived in the US from Mexico; in 2019, 50,000 migrants arrived in the US from Mexico. Discuss whether or not each of the following could have contributed to the observed changes in the relative wage and level of migration. In order to make your argument, draw an ES-ID diagram showing the ES and ID curves in 1990 and 2019 under the assumption that the only thing that happened was the effect listed in each part. EXAMPLE: Greater education in Mexico. This would have shifted ES to the right and not affected ID. This would have led to a lower relative wage, as observed, but greater migration, which was not observed. a. Lower youth population growth in Mexico. b. Greater financial resources at the disposal of Mexicans. c. Lower population growth in the US. d. Invent a combination of effects that could have brought about the observed changes in the relative wage and level of migration. Explain carefully how this would work and show it in a diagram. This question applies the theoretical supply-demand model for the US labor market from chapter four of the National Academies report, which I cover in one of the videos. In this model there are two inputs, labor and capital. Imagine that the native-born labor supply is vertical at 1000, and the equilibrium wage before immigration is $15 per hour. Then suppose that 200 migrants arrive and the equilibrium wage falls to $13 per hour. The total labor supply is now vertical at 1200 (1000 native-born plus 200 migrants). Note that the implied linear demand for labor curve is W = 25 0.01*L, where W is the wage and L is labor. a. What is the change in the total earnings of capital as a result of immigration? b. How much of that change is the so-called immigration surplus? Define the immigration surplus while answering this question. In the short run, immigration causes the demand for capital to rise. Why? d. In the long-run, capital is assumed to adjust to immigration. Describe the adjustment of capital. In particular, in the long run what happens to the 1) the supply of capital, 2) the rate of return on capital, and 3) the demand for labor, and 4) the wage. Yevgeny claims that emigration is undoubtedly a negative for source countries, whereas Yuzuki disagrees and says that in fact source countries can benefit when some of their inhabitants migrate. Describe some benefits and costs and emigration for source countries, and then offer an opinion as to whether Mexico has benefited from the emigration of some of its citizens to the US. E\