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Midterm1AK - Name é é Economics 1518 Winter 2010 Dr...

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Unformatted text preview: Name: é: é! Economics 1518 Winter 2010 Dr. Janine L.F. Wilson Economics 1518 Winter 2010 Midterm 1 Education and Earnings Labor Market Discrimination You will be given one hour and twenty minutes to complete this exam. Show all work. Credit will be given to correct answers only if there is back-up work. Problems: 1. In 2005, the job market for individuals with economics degrees was extremely hot. There were many jobs available at financial firms in need of those who had majored in economics. Expected earnings were $80,000 per year until the end of their career. In 2009, as a result of a global financial crisis, a recent graduate holding a degree in economics had trouble finding a job in his/her field. Firms were not hiring at the same rate because they were not growing. As a result, expected earnings for a recent graduate fell to $60,000 per year. Assume that Bill graduated in 2005 and Mike graduated in 2009. Both Bill and Mike have five years to either work or go to graduate school upon graduating with an economics degree and they both have a discount rate of 7%. a. If a one year masters degree would cost $5,000 per year and increase annual earnings to $100,000 per year, would Bill go on to get his masters? (6 points) Wm, = 391999- + £21992 a $029.0 . $2.292; . $0.000 ., 5‘50fi%.‘i \tO-“l’ Q+oml (Mom nge 7 f?“ flogkxs %\\\ ~3\\\ och :1? W3 MOMS dcgret b. Colleges were underfunded in 2009 relative to 2005 so the cost of a one year master’s degree rose to $6,000 per year. if a one year masters degree increased annual earnings to $80,000 per year, would Mike go on to get his masters? (6 points) (00,000 + loo 000 + @9999, be 000 \00 003 x . ._ _._L—- - 4» I + I —_ 71337—31. V“ «9 l i' of} U +0. 043 7' W U" 0 .63“ I . 4" I.“ Q1059 (vomit moo}? (no.0?) Wnoelas = ’ £9,000 + 117mg. 4 VVrlaslvexs “KR wi\\ get his must's 013366, Name: Economics 1518 Winter 2010 Dr. Janine LF. Wilson work they had 44 years to go to school and work how would your answer possibly c. If we assumed that instead of Mike and Bill havitfive years to go to school and/or change? Why? (in theory, do not calculate it) (4 ints) \rxl’lth ’(‘rt \ooaer lam horiaon 5906‘, C06\' 08v sdooo\ \J\\\ be, 0 much smo\\er ?YOF°‘“°“ éy “$1ka mrnkgg- ”WC mm in \n come ’ eakr ego“ 3r ex (533% wl\\ WAR O» 8r goofing? *0 mi UP. M graduates \0 BEDS mi 233% woo\A 4&6 ox «\qu s éfircc W' d. What if instead Bill and Mike had a discount rate of 15%, how would your answer possibly change? Why? (in theory, do not calculate it) (4 points) /\\(\C \I’X dlacomt ch‘vc indicates WEE; name, is $031K on WNW; Name: Economics 1518 Winter 2010 Dr. Janine L.F. Wilson 2. Suppose that Abbey (a low productivity worker) and Brenda (a high productivity worker) are both deciding whether to complete college. The present value of Abbey's lifetime earnings is $200,000, while the present value of Brenda’s lifetime earnings is $400,000. Even though Abbey and Brenda are attending the same college, Abbey has higher ”emotional costs” associated with each year attended. In particular, suppose that Abbey’ 5 cost of college attendance is given by: CAM(S)= 60,0005 and Brenda's cost of college attendance is given by Carenda(S)=30,000S where 5 represents years spent in college. a. Abbey and Brenda will eventually be employed at the same firm, which cannot observe productivity. Suppose that this firm offered everyone, regardless of schooling, earnings equal to $300,000 (in present value). How many years of college will Abbey choose to get? How many years of college will Brenda decide to get? Is this a pooling or separating equilibrium? Explain. (Be sure to show your work, or to describe how you gmwmmffizchg. m We 0... 000.03% .5 ID b. Now suppose that this firm offers employees with at least 4 years of college (524) earnings equal to $400,000 (in present value) and employees with less than 4 years of college (S<4) earnings equal to $200,000 (in present value). How many years of college will Abbey choose to get? How many years of college will Brenda decide to get? Is this a pooling or separating equilibrium? Explain. (Be sure to show your work, or to describe how you arrive at your conclusion.) (6 points) Ms Lam 0:000:00 “—oomoo {HQ 030 she woo\A‘o€ beatercfigmh 40 000,000 v’--a——-’ Name: Economics 1518 Winter 2010 Dr. Janine L.F. Wilson 3. Jack and Jill are both looking at theirjob opportunities in the market to decide how much schooling they should choose. Jack sees that, on average, men make a weekly wage of $200 if they graduate from high school only, $400 if they have 4 years of tertiary schooling and $500 if they have 6 years of tertiary schooling. Jill sees that, on average, women make a weekly wage of $150 if they graduate from high school only, $250 if they have 4 years of tertiary schooling and $300 if they have 6 years of tertiary schooling. Women have, on average 4 years of tertiary schooling and men have, on average 6 years of tertiary schooling. Suppose that schooling is the only variable that affects wages. ‘ a. What is the average male-female wage difference in this labor market? (show your work) (6 points) A name w‘xth €§=Ll earns MSG/wk A mom w‘vt‘h 5‘40 eame $500/wk b. Using the Oaxaca composition, calculate how much of the wage discrepancies are a result of discrimination? (show your work) (8 points) T0?» Nag Qnohooe are ”in my. “'9’“? +3833; indgwm=dm+$m3m mugging \n Jokes 3 w; = J*"l'sm gas (ma Wm: $933+ 50. ~ \. “nestled “a" Dwfi‘gngl c,‘ or ”woo 3350 C couhbls ’gor 53 c. What are the drawbacks in the real world of using the Oaxaca co discrimination? (list and describe two) (6 points) , Cannot contrfd gov (ABM? or agar)“ ”Do not ace gadmkeéeedrs or YIN) (fiacfimi ncx‘cion Con \md to \tss m5 Name: Economics 1518 Winter 2010 Dr. Janine LF. Wilson 4. A government position is sometimes given to an individual because they are a relative or friend of an existing politician instead of to an individual because he/she is the most qualified. ”Nepotism”, as this practice is called, can be represented using the following wage function where ws is the wage of a stranger and w, is the wage function of a family member or friend: wf= w,(1+d) where d<0 Assume that all government agencies produce the same goods, face the same profit function as private firms and that there are many government agencies with various levels of ”d” ranging from 0 to 56.4 a. If ws= $25 per hourtshow on a g a h below examples of employment levels for agencies with—dgél abel carefully) (6 points) Wage b. What would the profit function of all of the agencies look like (with d on the x axis and profit on the y axis? (remember/[Fe values of d range from O to ‘6) (6 points) ‘ a- TM at , —-\ ‘00b .alq “0‘1 c. Under competition between the various government agencies do we expect nepotism to continue? Why or why not? (6 points) No, time grins M me, No Jioomcm \NOf‘G—QXS N\\\ N35? ‘98- as {1% 9 WM compeéfifim “B W“ \ccwe the NWVC‘} ‘ 5 Name: Economics 1513 Winter 2010 Dr. Janine L.F. Wilson Short Answer 1. Jaeger and Page (1996) find that there is evidence of the signaling model in the US. labor market. What is the main difference between Jaeger and Page’s study of sheepskin effects and previous studies? (as discussed in section) (6 points) 2. What is a natural experiment? Please describe an example of a natural experiment that we discussed in class. Why are they so important to labor economics and economics in general? (6 points) \N‘Ofifl as a (6,50% 0‘} on «now a amoral” \nén’VOHofi ov QWWX on Cdodfld C\l <\\No (we: mews: 50 “W“ “‘ earmfismfi Mom \mOW‘I%“\D\C mmgl’lcyimi N6 \S—Qr Meow“ 0W ecomwc 3?“ CDch¢\’<l(\€ 5mm ma 0W6 Name: Economics 1518 Winter 2010 Dr. Janine L.F. Wilson 3. Suppose that an employer sets the wages of individual female and male workers (WI and w,”, respectively) using the weighted averages: _ wiF = 0.4 TF+ 0.6TiF W!” = 0.3 W + 0.7T,M a. Is the test associated with T a better predictor of productivity for men or women? How do you know? (6 points) 04 S‘or o—Q‘emcne Nod—er \s 010 c>< Sbro make wocclfrcisce} (encil ‘ = ' firehhm "\\l\ 00» $60 , bk) mm wig: $23k waded («>4 \5 highchwe 0% ycodxdriviiy fix me“- b. If you assume that both men and women have the same average test score and a man named Bob and a woman named Glenda score below that average, who will earn more, Bob or Glenda? (6 points) 4 o ; HS \\nC NLF 0.4 l l l 0,3 \ am w"\\\ mm more, T Vgob w'\\\ eoxn \css c. What is a way that this type of discrimination can be reduced or eliminated in the labor market? (6 points) ...
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