How much will low-ability workers be paid? Explain.

Assume there are 2 types of workers: high-ability workers and low-ability workers. The proportion o Show more Assume there are 2 types of workers: high-ability workers and low-ability workers. The proportion of workers that are high-ability is (theta) so the proportion that are low-ability is (1-). Over their career the value of the output produced by a high-ability workers is wh. The value of the output produced by a low-ability worker is w. Assume that wh > w. Assume that the market for labor is perfectly competitive. If employers can observe which workers are high-ability and which workers are low-ability how much will high-ability workers be paid over the course of their career? How much will low-ability workers be paid? Explain. Explain the following: If employers cannot tell which workers are high-ability and which workers are low-ability a risk-neutral employer with the objective of maximizing expected profit will pay all workers the same and the wage that they pay will be: w o = wh + (1-)w Show less

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