Question

A New York Times article observed that the wage of farmworkers in Mexico was \(\$ 11\) an hour but the wage of immigrant Mexican farmworkers in California was \(\$ 9\) an hour. a. Assume that the output sells for the same price in the two countries. Does this imply that the marginal product of labor of farmworkers is higher in Mexico or in California? Explain your answer, and illustrate with a diagram that shows the demand and supply curves for labor in the respective markets. In your diagram, assume that the quantity supplied of labor for any given wage rate is the same for Mexican farmworkers as it is for immigrant Mexican farmworkers in California. b. Now suppose that farmwork in Mexico is more arduous and more dangerous than farmwork in California. As a result, the quantity supplied of labor for any given wage rate is not the same for Mexican farmworkers as it is for immigrant Mexican farmworkers in California. How does this change your answer to part a? What concept best accounts for the difference between wage rates for Mexican farmworkers and immigrant Mexican farmworkers in California? c. Illustrate your answer to part b with a diagram. In this diagram, assume that the quantity of labor demanded for any given wage rate is the same for Mexican employers as it is for Californian employers.

Short answer

Question: Explain the difference in the marginal product of labor between farmworkers in Mexico and immigrant Mexican farmworkers in California accounting for factors like working conditions and market supply and demand. Answer: The difference in the marginal product of labor between farmworkers in Mexico and immigrant Mexican farmworkers in California can be attributed to factors like working conditions and differences in the supply and demand for labor in these markets. Due to the more arduous and dangerous nature of farmwork in Mexico, the supply of labor may be lower, leading to a compensating differential and higher wage rate of \(\$11\) per hour compared to \(\$9\) for immigrant Mexican farmworkers in California. This difference in wages suggests a higher marginal product of labor in Mexico compared to immigrant Mexican farmworkers in California.

Step-by-step solution

Determine the relationship between marginal product of labor and wages

According to economic theory, the wage rate in any type of market is equal to the marginal product of labor in that specific market, i.e., the additional output produced by hiring one more worker. If a worker’s marginal product is higher, firms demand that worker at a higher wage rate. Knowing this, we can compare the marginal product of labor in Mexico and in California by analyzing the wages in both labor markets.

Compare marginal product of labor between Mexico and California (part a)

We are given that the wage of farmworkers in Mexico is \(\$11\) an hour, while the wage of immigrant Mexican farmworkers in California is \(\$9\) an hour. Assuming that the output sells for the same price in the two countries and the quantity supplied of labor for any given wage rate is the same for Mexican farmworkers as it is for immigrant Mexican farmworkers in California, we can infer that the marginal product of labor is higher in Mexico (MP(Labor Mexico) > MP(Labor California)).

Analysis of more arduous and dangerous farmwork in Mexico (part b)

Due to the more arduous and dangerous nature of farmwork in Mexico as opposed to farmwork in California, the quantity supplied of labor for any given wage rate will not be the same for Mexican farmworkers as it is for immigrant Mexican farmworkers in California. This means that the demand for labor may be higher in Mexico, but the supply of labor may be lower, leading to similar wage rates. In this case, the concept of compensating differentials can best account for the difference in wage rates between Mexican farmworkers and immigrant Mexican farmworkers in California. Compensating differentials are differences in wages offered for jobs that require the same skill level but may have different working conditions or inconveniences associated with them.

Illustrate the answer with a diagram (part c)

To illustrate this answer, we will draw the supply and demand curves for Mexican farmworkers and immigrant Mexican farmworkers in California, assuming that the quantity of labor demanded for any given wage rate is the same for these markets. Imagine a graph where the vertical axis represents the wage rate (W) and the horizontal axis represents the quantity of labor (L). For California labor market, we have a downward-sloping Demand curve (D) and an upward-sloping Supply curve (S). At the equilibrium, the wage rate for immigrant Mexican farmworkers in California is \(\$9\). For the Mexican labor market, we have a similar Demand curve (D') and an upward-sloping Supply curve (S'). However, due to the more arduous and dangerous nature of farmwork in Mexico, the supply curve shifts to the left, indicating a lower quantity of labor supplied at each wage rate. At the equilibrium, the wage rate for Mexican farmworkers is \(\$11\). This illustrates that the difference in wage rates between the two markets can be explained by factors such as the more arduous and dangerous nature of farmwork in Mexico, which results in a compensating differential as the supply of labor is lower in this market.