1. Assume that human capital skills from education decay over time because the knowledge gained by young students becomes obsolete as technology becomes increasingly complex over the years. What happens to a worker's optimal amount of schooling if this depreciation or rate of decay increases? (Hint: remember the marginal benefit = marginal cost decision rule) 2. Assume that college graduates earn 50% more than high school graduates. It is typically thought that without accounting for ability levels, this 50% increase from going to college rather than working straight out of high school would be a biased measurement, as more able people are more likely to earn college degrees. If this is true, would we expect the true underlying effect to be higher than, or lower than 50% ? (Hint: figure out the direction of this bias) 3. Suppose there are two types of workers: high and low ability, E, and E₁. Imagine that a diploma costs $20,000 for low ability workers, but only $8,000 for high ability workers due to scholarship availability. If a firm wishes to pay $25,000 to workers without a diploma and $K to workers with a diploma, how much does $K need to be for a diploma to work as an effective signal? (Hint: need both that Eμ chooses college and E₁ does not) 4. Imagine that a restaurant hires only women to work front-of-house (serving, hosting, bartending) and only men to work back-of-house (cooking, cleaning dishes), is this most likely a result of employer (restaurant owner), employee (coworkers), customer (diners), or statistical discrimination? Give a brief justification.
1. Assume that human capital skills from education decay over time because the knowledge gained by young students becomes obsolete as technology becomes increasingly complex over the years. What happens to a worker's optimal amount of schooling if this depreciation or rate of decay increases? (Hint: remember the marginal benefit = marginal cost decision rule) 2. Assume that college graduates earn 50% more than high school graduates. It is typically thought that without accounting for ability levels, this 50% increase from going to college rather than working straight out of high school would be a biased measurement, as more able people are more likely to earn college degrees. If this is true, would we expect the true underlying effect to be higher than, or lower than 50% ? (Hint: figure out the direction of this bias) 3. Suppose there are two types of workers: high and low ability, E, and E₁. Imagine that a diploma costs $20,000 for low ability workers, but only $8,000 for high ability workers due to scholarship availability. If a firm wishes to pay $25,000 to workers without a diploma and $K to workers with a diploma, how much does $K need to be for a diploma to work as an effective signal? (Hint: need both that Eμ chooses college and E₁ does not) 4. Imagine that a restaurant hires only women to work front-of-house (serving, hosting, bartending) and only men to work back-of-house (cooking, cleaning dishes), is this most likely a result of employer (restaurant owner), employee (coworkers), customer (diners), or statistical discrimination? Give a brief justification.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Assume that human capital skills from education decay over time because the knowledge gained
by young students becomes obsolete as technology becomes increasingly complex over the
years. What happens to a worker's optimal amount of schooling if this depreciation or rate of
decay increases? (Hint: remember the marginal benefit = marginal cost decision rule)
2. Assume that college graduates earn 50% more than high school graduates. It is typically thought
that without accounting for ability levels, this 50% increase from going to college rather than
working straight out of high school would be a biased measurement, as more able people are
more likely to earn college degrees. If this is true, would we expect the true underlying effect to
be higher than, or lower than 50%? (Hint: figure out the direction of this bias)
3. Suppose there are two types of workers: high and low ability, E and E₁. Imagine that a diploma
costs $20,000 for low ability workers, but only $8,000 for high ability workers due to scholarship
availability. If a firm wishes to pay $25,000 to workers without a diploma and $K to workers with
a diploma, how much does $K need to be for a diploma to work as an effective signal? (Hint:
need both that Eμ chooses college and E₁ does not)
4. Imagine that a restaurant hires only women to work front-of-house (serving, hosting,
bartending) and only men to work back-of-house (cooking, cleaning dishes), is this most likely a
result of employer (restaurant owner), employee (coworkers), customer (diners), or statistical
discrimination? Give a brief justification.
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