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ProblemSet7 - Economics 3203 – Fall 2010 Problem Set 7...

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Unformatted text preview: Economics 3203 – Fall 2010 Problem Set # 7: Human Capital, Signaling, & Migration Due Monday, Nov 15 (in class) 1. Suppose an employer is trying to set up a wage schedule. In order to avoid overpaying anyone, the firm reasons that it could have an educational requirement so that only people who are more highly educated will get their higher- wage jobs. The firm hopes this will “sort out” the workers into those with higher and lower productivity. There are two types of workers: high productivity (H) and low productivity (L). H types have productivity of $30,000/ year, while L types have productivity of $20,000/year. College costs are $24,000 for H types and $32,000 for L types (note: education does not affect productivity). The firm will pay workers with a college education $30,000/year; others will be paid $20,000/year. a. Suppose there are only 3 working periods left in each worker’s life. Calculate the present value of the benefits of employment for those with and without college educations. of employment for those with and without college educations....
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