Suppose a town’s largest employers are its auto manufacturing plant and its airplane manufacturing plant. Airplane manufacturing jobs require familiarity with a technology that is not currently used in auto manufacturing. Assume workers are indifferent between the two types of manufacturing work.
a. All else equal, which plant will pay its workers more?
b. Suppose the auto industry adopts the same technology used by airplane manufacturers and trains its current workers in this technology. What will happen to the pay differential between auto manufacturing and airplane manufacturing work?