Question

Discuss the wage schooling locus. Give examples

Answer 1

Salaries firms are willing to pay workers depends on the level of schooling. The wage schooling locus is upward sloping. concave from its origin reflecting diminishing returns to schooling. For example - a worker for given level of schooling. Market determined the slope of wage-schooling locus is indicating the earning increase associated with one or more year of schooling. The wage schooling locus in concave diminishing returns to education are assumed. The worker maximizes the present value of lifetime earnings by going to school until the marginal rate of return to schooling equals to the rate of discount. This is explain by another example i.e. A worker with discount rate suppose R goes to school for S* years RAM and Shyam have same discount rate R but each worker faces a different wage schooling locus.