Question: 3. Suppose that schooling is the only variable that affects earnings, and that the equations giving the weekly salaries of male and female workers are

3. Suppose that schooling is the only variable that affects earnings, and that the equations giving the weekly salaries of male and female workers are given by: Wm = 200 + 5s and Wf = 150 + 3s. On average, men have 14 years of schooling and women have 12 years of schooling. a. What is the average male-female wage differential in the labor market? b. Using the Oaxaca decomposition, calculate how much of this wage differential is due to discrimination in levels and discrimination in returns to "skills". c. Why might your answer to part b. understate the extent of discrimination? d. Why might your answer to part b. overstate the extent of discrimination

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