Two Economics Ordinary Least Squares Discussion

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Question 1

The following equations have been estimated by Ordinary Least Squares (OLS), where Y denotes annual earnings, P job evaluation points, and the subscripts m and f denote male and female respectively:

Ym = 5000 + 100Pm

Yf = 4000 + 80Pf

Assume the average job evaluation score was 300 points in male-dominated jobs and 200 points in female-dominated jobs.

  1. What is the average pay in male-dominated jobs and in female-dominated jobs
  2. Use a Oaxaca decomposition to determine the average pay differential between male and female dominated jobs into two components: a portion attributable to the difference in job evaluation points (valued according to the male pay for such points) and a portion attributable to differences in pay for the same job evaluation points.
  3. Use that same decomposition, but this time evaluate the differences in job evaluation points according to the female pay for such points.

Question 2

Imagine we live in a world with two types of skill sets: people with high ability and people with low ability. A diploma will cost a high ability person about 8K and will cost a low ability person about 20K. Businesses use education as a screening tool and they intend to pay 25k to workers without a diploma and $X to those with a diploma. In what range must X be to make this an effective screening tool?

Your answer will include a set of equations showing the dollar range for both low ability and high ability people.

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