University of North Carolina Economics 190, Spring

Quiz 3 April 17, 2003

1. In the U.S. and elsewhere, mean earnings are … greater than median earnings.

2. For a country where all have the same earnings, the Gini coefficient would be … 0

3. Commonly, a simple Oaxaca decomposition for the male-female wage gap finds that … skill differences explain very little of the earnings difference.

4. In a wage regression the estimate of the coefficient on “age” has a t-statistic of 12. This means … that age has a statistically significant effect on wages.

5. If immigrants from Estonia to the US are “negatively selected”, this means … they have fewer skills than the Estonians who do not immigrate.

6. How would increased trade affect earnings inequality? Explain.

This depends on how skill-intensive imports and exports are. The U.S. exports fairly high-tech goods (computers; pharmaceuticals); so increased exports raise the demand for (and wages of) skilled workers. At the same time, imports to the U.S. (e.g. textiles) tend to compete with (or displace) goods made by less-skilled workers; an increased level of imports would reduce the demand for (and wages of) less-skilled workers.

7. What has happened to the earnings gap between college and high school educated workers in the last 30 years?

The gap fell during the 1970s, but increased dramatically thoughout the 1980s, flattening out in the 1990’s.

8. Some have viewed employers’ personal prejudices (or “tastes for discrimination”) as the source of persistent discrimination. Is there a problem with this explanation? Why?

The problem is that employer discrimination in this sense “doesn’t pay”- it reduces profits. Over time, we would expect the more profitable, non-discriminating employers to take over the market.

9. What is a “tied mover”?

A worker who individually would not benefit from moving to another location, but who moves because his spouse’s gains exceed his losses, is a tied mover.

10. The probability of moving across state lines in a given year decreases with age but increases with education. Please explain why.

There are many explanations. Older workers have acquired more specific on-the-job training, so they receive better wages than elsewhere. Older workers also have fewer years left in their working life, so a certain investment (e.g. paying moving costs) might not be worth it. The ‘psychic costs’ of moving are probably much lower for young people- they have fewer dependent relatives etc.

Highly educated workers are more specialized, so the relevant labor market is a national one. They may also have better access to information about opportunities in other places. Alternatively, the type of worker that leaves home to attend college may be very different (more inclined to move) than people who do not. [In this case education really isn’t the cause of greater mobility.]