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Wage differentials between developed and developing countries

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Explain why the general level of wages in high in the United States and other industrially advanced countries. What is the single most important factor underlying the long-run increase in average real-wage rates in the United States

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Solution Summary

Explanation for the difference in wage rates in advanced countries and less developed ones. The single most important factors underlying this difference is explained.

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In industrialized countries, labor is less abundant because population growth declines. Secondly, work become specialized. This has several effects. Firstly, labor becomes more expensive relative to capital. Cheaper capital can then be used to give each worker capabilities to fully utilize his skills. Also, people invest more heavily in human capital, because it's worthwhile to do so. If there are only ...

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