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BrendanOO7 BrendanOO7
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6 years ago
When the minimum wage increased 10 percent, the demand for skilled workers increased by 3 percent.  What cross-wage elasticity would you calculate here? Explain.  Is the cross-wage elasticity indicative of input categories that are gross substitutes or gross complements?  Explain.
Textbook 
Modern Labor Economics: Theory and Public Policy

Modern Labor Economics: Theory and Public Policy


Edition: 12th
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#1
6 years ago
Given that the least skilled in the labor force (for example, teenagers) earn the minimum wage, this cross-elasticity could be characterized as the cross-wage elasticity of demand between skilled workers and very unskilled labor.  The value of the cross-wage elasticity is +0.3, implying that skilled labor and very unskilled labor are gross substitutes.
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