Wage-schooling locus

Wage-schooling locus - 10.22 The Wage-Schooling Locus: -...

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10.22 The Wage-Schooling Locus: - used to determine how much schooling to get - shows the salary that firms are willing to pay for a given amount of education - wage pay for a certain years of education - Assumptions: o A market for each level of education Market for 12 years of school GRAPHS (I) - Properties: o Locus is continuous; big jump as add a degree o Upward sloping: more education equals more wage o Concave: diminishing marginal returns to education (first few years of education are worth more than higher years of education) Marginal rate or return to schooling (MRRS) – percent change in wages from an additional year of schooling - Stopping rule: MRRS = discount rate o Get the same decision as with the schooling model o GRAPHS (II) MRRS downward sloping (in reference to wage-schooling locus) Discount rate of ‘r’ S is our stopping point of years of education - Different levels of education for different people : o Discount rate (same ability) Difference in time preference
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Wage-schooling locus - 10.22 The Wage-Schooling Locus: -...

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