Suppose years of schooling s is the only variable that affects earnings. On average, assume that men have 14 years of schooling and women have 12 years of schooling. The equations for weekly salaries of male and female workers are given by
wm = 500 + 100s and wf = 300 + 75s.
a) What is the male-female wage differential (in dollars) in the labor market?
b) Use the Oaxaca decomposition to calculate how much of this wage differential is due to labor market discrimination.
c) What is an alternative Oaxaca decomposition that would lead to a different measure of discrimination? Which measure is better?