ECON 115 - Labor Economics Drake University, Spring 2012 William M. Boal Course page: www.drake.edu/cbpa/econ/boal/115 Blackboard: bb.drake.edu william.boal@drake.edu

### Version A

I. Multiple choice

(1)b. (2)b. (3)d. (4)b. (5)b. (6)b. (7)b. (8)b. (9)b. (10)c.
(11)a. (12)c. (13)c. (14)c. (15)d. (16)a. (17)b. (18)c. (19)b. (20)b.

II. Problems

(1) [Measuring inequality: 14 pts]

1. Kink point with percent of population=60 percent and percent of earnings=36 percent.
2. 0.24.
3. 167 percent.
4. 0 percent.
5. 167 percent.

(2) [Migration decision: 8 pts]

1. Net gain to migration = \$-645, so will not move to St. Louis.
2. \$27,355.

(3) [Roy model: 4 pts]

1. 60 < S < 100.
2. positively selected.

(4) [Oaxaca decomposition: 6 pts]

1. Raw log wage differential is found by substituting each group's average schooling into its own wage equation, to give 2.5 - 2.0 = 0.5.
2. The log wage differential due to schooling equals the coefficient of schooling for green workers (who are not subject to discrimination) times the difference in average schooling = 0.1 (12-10) = 0.2.
3. The log wage differential due to discrimination is given by the difference in intercepts, plus the difference in slopes times blue workers' average schooling, or (1.3-1.2) + (0.1-0.08)10 = 0.3. Alternatively, the differential due to discrimination may be computed as the raw log wage differential minus the differential due to schooling.

(5) [Employer discrimination: 18 pts]

1. EG=0, EB=36, q=72, profit=\$360.
2. EG=0, EB=25, q=60, profit=\$350.
3. EG=9, EB=0, q=36, profit=\$180.

(6) [Household production-possibility curve: 10 pts]

1. "Market goods" intercept=\$300, "Household services" intercept=250, kink point with market goods=\$200 and household services=150.
2. 5 hours.
3. 0 hours.

### Version B

I. Multiple choice

(1)c. (2)d. (3)d. (4)d. (5)a. (6)c. (7)a. (8)b. (9)c. (10)d.
(11)d. (12)c. (13)a. (14)b. (15)a. (16)b. (17)a. (18)d. (19)a. (20)c.

II. Problems

(1) [Measuring inequality: 14 pts]

1. Kink point with percent of population=70 percent and percent of earnings=28 percent.
2. 0.42.
3. 500 percent.
4. 500 percent.
5. 0 percent.

(2) [Migration decision: 8 pts]

1. Net gain to migration = \$594, so will move to St. Louis.
2. \$28,594.

(3) [Roy model: 4 pts]

1. 0 < S < 30.
2. negatively selected.

(4) [Oaxaca decomposition: 6 pts]

1. Raw log wage differential is found by substituting each group's average schooling into its own wage equation, to give 3.2 - 2.3 = 0.9.
2. The log wage differential due to schooling equals the coefficient of schooling for green workers (who are not subject to discrimination) times the difference in average schooling = 0.12 (15-10) = 0.6.
3. The log wage differential due to discrimination is given by the difference in intercepts, plus the difference in slopes times blue workers' average schooling, or (1.4-1.3) + (0.12-0.10)10 = 0.3. Alternatively, the differential due to discrimination may be computed as the raw log wage differential minus the differential due to schooling.

(5) [Employer discrimination: 18 pts]

1. EG=0, EB=81, q=54, profit=\$810.
2. EG=0, EB=36, q=36, profit=\$720.
3. EG=25, EB=0, q=30, profit=\$450.

(6) [Household production-possibility curve: 10 pts]

1. "Market goods" intercept=\$350, "Household services" intercept=250, kink point with market goods=\$150 and household services=200.
2. 5 hours.
3. 10 hours.