Question

Suppose years of schooling, s, is the only variable that affects earnings. The equations for the weekly salaries of male and female workers are given by ???? = 500 +100?? and ???? = 300 + 75??. On average, men have 14 years of schooling and women have 12 years of schooling.

a. What is the male-female wage differential in the labor market?

b. Using the Oaxaca decomposition, calculate how much this wage differential id due to discrimination.

Answer 1

Solution:-

(A). Wm = 500 + 100s = 500 + (100 x 14) = 500 + 1400 = 1900

Wf = 300 + 75s = 300 + (75 x 12) = 300 + 900 = 1200

Average wage differential = 1900 - 1200 = 700