Question

Suppose years of schooling, s, is the only variable that affects earnings. The equations for the weekly salaries of male and female workers in 1970 are given by: Wm= 500 + 100s Wi= 300 + 75s On average, men have 14 years of schooling and women have 13 years of schooling. A. What is the average male-female wage differential in the labor market? (2 point) b. How much of this wage differential may be due to discrimination? Note that there are two possible ways to calculate this, so do it both ways and compare the two answers you get. Place your answer in percent terms. (4 points) C. By now, women have surpassed men in educational attainment with women having on average 15 years of education and men having 14. What would the wage gap be, assuming the wage equations remained unchanged? (2 points) d. How much of this gap is unexplained by education? Use just one of the methods and place your answer in percent terms. (2 points) e. What else besides discrimination may contribute to this gap? (2 points)

Answer 1

The average male-female wage differential in 1970 was $625. Discrimination was estimated between 10.53% and 28.95% of the average male salary. With women's increased education, the wage gap is $475, with 25% potentially due to discrimination.

Step-by-step explanation:

Wage Discrimination Analysis

To calculate the average male-female wage differential from the given equations, we first determine the average weekly salary for male and female workers in 1970. For males with 14 years of schooling (Wm), it's 500 + 100(14) = $1900. For females with 13 years of schooling (Wi), it's 300 + 75(13) = $1275. The average wage differential is $1900 - $1275 = $625.

To assess how much of this wage differential may be due to discrimination, we compare the salaries based on the same levels of schooling and the difference in intercepts of the two equations. If we compare females with 14 years of schooling to males with the same education, Wi at 14 years is 300 + 75(14) = $1350. The difference due to discrimination is then $1900 (male wage) - $1350 (female wage if paid as males) = $550. Alternatively, we could compare the intercepts directly, which shows a $200 base pay difference not explained by schooling. The discrimination portion in percentage terms from the first method is ($550/$1900) * 100% = 28.95%, and from the second method is ($200/$1900) * 100% = 10.53%.

If women now have 15 years of education and men 14, the wage gap becomes for men $1900 (unchanged) and for women 300 + 75(15) = $1425. The new wage gap is $1900 - $1425 = $475. When calculated in one method, the discrimination percentage is now ($1900 - $1425)/$1900 = 25%.

Besides discrimination, other factors contributing to the wage gap could include career choices, occupational segregation, differences in hours worked, and societal norms.

Answer 2

A. The average male weekly salary can be calculated by substituting s = 14 into the equation for Wm:

Wm = 500 + 100(14) = 1900

Similarly, the average female weekly salary can be calculated by substituting s = 13 into the equation for Wi:

Wi = 300 + 75(13) = 1275

Therefore, the average male-female wage differential is:

1900 - 1275 = 625

So the average male-female wage differential in the labor market is $625 per week.

B. One way to calculate how much of the wage differential may be due to discrimination is to assume that the only factor affecting earnings is years of schooling, and therefore any difference in earnings between men and women with the same level of education must be due to discrimination. Under this assumption, we can calculate the expected earnings for women if they had the same level of education as men, and compare it to their actual earnings.

The expected earnings for women can be calculated by substituting s = 14 into the equation for Wi:

Wi' = 300 + 75(14) = 1275 + 75 = 1350

This means that if women had the same level of education as men, they would be expected to earn $1350 per week. Therefore, the portion of the wage differential that may be due to discrimination is:

(1900 - 1350) / 1900 = 0.29 or 29%

Another way to calculate how much of the wage differential may be due to discrimination is to compare the actual earnings of men and women with the same level of education. In this case, we can compare the earnings of men with 13 years of schooling to the earnings of women with 13 years of schooling:

Wm(13) = 500 + 100(13) = 1800

Wi(13) = 300 + 75(13) = 1200

The difference in earnings between men and women with the same level of education is:

1800 - 1200 = 600

So the portion of the wage differential that may be due to discrimination is:

(600 / 1800) x 100% = 33.3% or approximately 33%

C. Assuming the wage equations remained unchanged, the average male weekly salary can be calculated by substituting s = 14 into the equation for Wm, and the average female weekly salary can be calculated by substituting s = 15 into the equation for Wi:

Wm = 500 + 100(14) = 1900

Wi = 300 + 75(15) = 1425

Therefore, the wage gap would be:

1900 - 1425 = 475

So the wage gap between men and women would be $475 per week.

D. To calculate how much of the wage gap is unexplained by education, we can compare the actual earnings of men and women with the same level of education. In this case, we can compare the earnings of men with 15 years of schooling to the earnings of women with 15 years of schooling:

Wm(15) = 500 + 100(15) = 2000

Wi(15) = 300 + 75(15) = 1500

The difference in earnings between men and women with the same level of education is:

2000 - 1500 = 500

So the portion of the wage gap that is unexplained by education is:

(500 / 2000) x 100% = 25%

E. Besides discrimination, other factors that may contribute to the wage gap between men and women include differences in work experience, occupation, and industry. Women may also face barriers to career advancement, such as the "glass ceiling" effect, which can limit their opportunities for higher-paying positions. Additionally, women may bear a disproportionate burden of caregiving responsibilities, which can impact their ability to work full-time or pursue higher-paying careers.