Labor Economics
7th Edition
ISBN: 9780078021886
Author: George J Borjas
Publisher: McGraw-Hill Education
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Question
Chapter 6, Problem 13P
(a)
To determine
The wage-schooling locus of the decrease in returns to school and increase after college.
(b)
To determine
The graphical representation of the marginal
(c)
To determine
The impact on college graduates that are described in the first part.
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a. Draw the wage-schooling locus for someone for whom the returns to schooling decrease through college but increase after college. (Assume college is completed after 16 years of schooling and that one can receive at most 6 years of postcollege schooling.) b. On a new graph, plot the marginal rate of return to schooling implied by the wage-schooling locus described in part a. c. What can be said about a college graduate who faces the wage-schooling locus described in part a?
3. The value of a worker's marginal product is $40 per hour for high-ability workers
and $10 per hour for low-ability workers. Each worker cares about the wage
(w) and amount of education (e) he or she obtains. Preferences over education-
wage pairs (e, w) of high-ability workers are representable by utility function
un(e, w) = w - 5e, and low-ability workers by utility function u(e, w) = w – 10e.
By law, everyone is required to attend at least 10 years of school. One-third of
the population has low ability and two-thirds has high ability. Reservation wage
for each type is zero.
What can you say about the educational attainment of each type of
the worker in a separating equilibrium? Show your work.
a)
b)
What can you say about the educational attainment of each type of
the worker in a pooling equilibrium? Show your work.
Jill is planning the timing of her on-the-job training investments over the life cycle. What happens to Jill’s OJT investments at every age if a. The market-determined rental rate to an efficiency unit falls? b. Jill’s discount rate increases? c. The government passes legislation delaying the retirement age until age 70? d. Technological progress is such that much of the OJT acquired at any given age becomes obsolete within the next 10 years?
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- Suppose Fred's wage-schooling relationship is given by Years of Schooling Earnings 9 $28,000 10 $31,150 11 $33,700 12 $35,900 13 $37,400 14 $38,500 Derive the marginal rate of return schedule. When will Fred quit school if his discount rate is 5 percent? What if the discount rate is 10 percent?arrow_forward> Figure 1 $ of consumption per year 30000 28000 26000 24000 22000 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 Warren 333 0 0 200 400 600 sample indifference curves Refer to Figure 1 What is Warren's wage per hour? 1166 800 1000 1200 1400 1600 1800 2000 2200 Hours of leisure per year Suppose all workers have 2000 hours to spend in work or leisure. Figure 1 displays sample indifference curves and a budget constraint corresponding to no income redistribution program for Warren.arrow_forwardHow does a higher interest rate affect the elements of schooling choice? ○ The wage-schooling curve shifts up. Wealth increases, increasing the iso-wealth curves. O Every iso-wealth curve gets steeper. O The wage-schooling curve gets steeper.arrow_forward
- Discuss how empirical studies estimate the rate of return to schooling and the methods used to avoid the problem of ability bias.arrow_forward1. 6. Consider an individual who initially works T-L. hours per week, where (T-L.)>0. They earn an hourly wage (W) and no non-labour income. a) Draw a graph that reflects this individual's income-leisure constraint, utility-maximizing indifference curve (U.) and choice of leisure hours (L). b) The government then implements a wage subsidy program in which worker wages are increased by 10%. This wage subsidy program has no limits, so there is no phase-in/out. This wage subsidy produces both an income effect and a substitution effect on the worker's choice of leisure hours. Assume that the substitution effect is stronger than the income effect. On the same graph as parta, draw this individual's new income-leisure constraint, utility- maximizing indifference curve (U.) and choice of leisure hours (Ls). [Note: When incorporating the 10% wage subsidy into the graph in part b, I am not expecting perfect precision. Just try your best to draw the new income-leisure constraint as though a 10%…arrow_forward3 Imagine that the wage-schooling locus is given by w(s)=s^(1/3). What will be the optimal level of education for an individual to take if next period’s earnings in any given time are worth 95% of current earnings for that individual? ---- HINT: the answer is s=20/57. I need step by step solutionarrow_forward
- Suppose Carl’s wage-schooling locus is given by Years of Schooling Earnings 10 $30,000 11 $35,000 12 $40,000 13 $45,000 14 $50,000 15 $55,000 16 $60,000 17 $65,000 Derive the marginal rate of return schedule. When will Carl quit school if his discount rate is 14 percent? What if the discount rate is 9 percent?arrow_forwardDowngrading refers to a situation where: a. downward statistical biases in the effects of immigration on relative wages exist. b. downward statistical biases in the effects of immigration on native employment exist. c. adjustments must be made to relative wage parameters due to differences in the total compensation paid to immigrants relative to native workers. d. the wage or occupation of immigrants in the labor market is systematically lower than those of natives with the same observed education and experience levels.arrow_forwardSuppose that, on average, men earn $17 an hour and have an average of 15 years of schooling. Women earn $15 an hour and have an average of 14 years of schooling. If the estimated return to schooling for men is 0.30 (implying that each additional year of schooling translates into an additional 30 cents per hour) and the returns for schooling for women is 0.2, then the gender gap in schooling explains: 10% of the wage gap between men and women. 20% of the wage gap between men and women. 30% of the wage gap between men and women. 15% of the wage gap between men and women.arrow_forward
- Suppose Carl’s wage-schooling locus is given byYears of Schooling Earnings 9 $18,500 10 $20,350 11 $22,000 12 $23,100 13 $23,900 14 $24,000Derive the marginal rate of return schedule. When will Carl quit school if his discount rate is 4 percent? What if the discount rate is 12 percent?arrow_forwardSuppose that John is a high-school drop out with a market wage of $8. a. Give two reasons why John' MRPL might increase if the firm pays an efficiency wage? b. The relationship between John's wage and MRPL is given in the table below. What is the efficient wage for John? Wage ($/hour) MRPL ($/hour) $8 $8.00 $9 $9.50 $10 $11.00 $11 $12.25 $12 $13.00 $13 $13.50 $14 $14.00arrow_forwardImagine a scenario where a worker receives a wage far above the market determined rate for their employment. Using the concept of cognitive dissonance, would this worker be predicted to respond with more or less effort on the job? Explain.arrow_forward
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