Consider a simple model in which schooling (denoted by s) is the only determinant of wages. Let wM be the wages for men and wF be the wages for women. The male earnings function is given by wM = M +M sM and the Female earnings function: wF = F +F sF 1. Interpret M and F 2. Write a mathematical expression in terms of M and F for the following statement: Employers value the skills of men and women who have zero years of schooling equally 3. Let ( w) = wM wF be the raw wage differential. Let sM be the mean schooling of men and sF be the mean schooling of women. Write an expression for ( w) in terms of M , F , M , F and sM , sF 4. Decompose the raw wage differential w into a portion that arises because men and women, on average, have different skills and a portion attributable to labor market discrimination. This is called the Oaxaca decomposition. [Hint: add and subtract the term (M sF )] 5. Assume a scenario where men and women have the same education on average. Derive conditions in terms of M , F , M , F under which: There is labor market discrimination There is no labor market discrimination 6. What are potential issues with the measure of labor market discrimination using the Oaxaca decomposition? 7. Assume M > F and M > F . Draw a figure to explain the Oaxaca decompo- sition, with schooling on the x-axis and wages on the y-axis. Label the following points on the figure: Point A: What would a woman with average schoolin