Why do industries that employ high-skilled workers have lower pay ratios than industries that employ low-skilled workers?
Demand for high-skilled workers is _____________ than demand for low-skilled workers, and supply of high-skilled workers is ___________ than supply of low-skilled workers.
Wrong! - How does the value of marginal product of high-skilled workers compare to the value of marginal product of low-skilled workers? Who has the greater cost of acquiring skill—high-skilled or low-skilled workers? How does this influence the compensation of the two groups and pay ratios in industries that higher high-skilled or low-skilled workers?
Well Done! - The value of marginal product of high-skilled workers is greater than the value of marginal product of low-skilled workers, so demand for high-skilled workers is greater than demand for low-skilled workers. The cost of acquiring skills for high-skilled workers is greater than the cost of acquiring skills for low-skilled workers, so supply of high-skilled workers is smaller than supply of low-skilled workers. With a greater demand and a smaller supply, high-skilled workers receive greater pay than low-skilled workers, and firms that employ high-skilled workers have lower pay ratios.
