Suppose a researcher estimates the relationship between average earnings (Y) and number of years of education...

 

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Suppose a researcher estimates the relationship between average earnings (Y) and number of years of education (E), separately for immigrants (I) and native born (N) workers. She obtains the following estimates: YN = an + BNEN = 35,000 + 3,000EN Y, = a, + B,E, = 25,000 + 1,500E, 1. Suppose that native born workers have, on average, 12 years of education (EN immigrant workers have 14 (E, = 14). What is the average earnings of native born workers? The average earnings of immigrants? What is the raw earnings gap between native born workers and immigrants? [5 points] = 12) and 2. Explain what it means that a, < an. Explain what it means that B, < BN. Is this consistent with the empirical evidence in Canada? Explain. [5 points] 3. Using an Oaxaca decomposition, calculate what fraction of the raw earnings gap is explained by differences in years of education. Consider 2 different counterfactuals: [10 points] a. if the returns to education were equal to By for both native born and immigrant workers b. if the returns to education were equal to B, for both native born and immigrant workers Make sure to interpret your results. 4. Is the unexplained portion of the gap you found above an accurate estimate of the extent of discrimination against immigrants in the Canadian labour market? If not, discuss two possible sources of bias. [8 points] Suppose a researcher estimates the relationship between average earnings (Y) and number of years of education (E), separately for immigrants (I) and native born (N) workers. She obtains the following estimates: YN = an + BNEN = 35,000 + 3,000EN Y, = a, + B,E, = 25,000 + 1,500E, 1. Suppose that native born workers have, on average, 12 years of education (EN immigrant workers have 14 (E, = 14). What is the average earnings of native born workers? The average earnings of immigrants? What is the raw earnings gap between native born workers and immigrants? [5 points] = 12) and 2. Explain what it means that a, < an. Explain what it means that B, < BN. Is this consistent with the empirical evidence in Canada? Explain. [5 points] 3. Using an Oaxaca decomposition, calculate what fraction of the raw earnings gap is explained by differences in years of education. Consider 2 different counterfactuals: [10 points] a. if the returns to education were equal to By for both native born and immigrant workers b. if the returns to education were equal to B, for both native born and immigrant workers Make sure to interpret your results. 4. Is the unexplained portion of the gap you found above an accurate estimate of the extent of discrimination against immigrants in the Canadian labour market? If not, discuss two possible sources of bias. [8 points]