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Education Spillover Benefi ts Consider a city where the initial wage of high-school dropouts is $10. Suppose the college share of the workforce increases by 2 percent. Use a demand-supply graph of the labor market for high-school dropouts to show the effects on the dropout wage. Use the numbers provided in the section “Human Capital and Economic Growth.”

Chapter 5, Problem 2

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QUESTION:

Education Spillover Benefits

Consider a city where the initial wage of high-school dropouts is $10. Suppose the college share of the workforce increases by 2 percent. Use a demand-supply graph of the labor market for high-school dropouts to show the effects on the dropout wage. Use the numbers provided in the section “Human Capital and Economic Growth.”

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QUESTION:

Education Spillover Benefits

Consider a city where the initial wage of high-school dropouts is $10. Suppose the college share of the workforce increases by 2 percent. Use a demand-supply graph of the labor market for high-school dropouts to show the effects on the dropout wage. Use the numbers provided in the section “Human Capital and Economic Growth.”

ANSWER:

Step 1 of 2

Given, the average pay for educated city dwellers rises by 2%.

Initial equilibrium in the market for school dropouts is determined by the intersection of the demand and supply curves for dropouts, which determines the W wage rate and Q quantity of dropouts.

Suppose the salary rate for a worker with a college education rises by 2%.

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