Assignment:
The Table below contains data on the wage-schooling loci and marginal rates of return (MRR) for Tim, a high school graduate with 12 years of schooling, and Mark, a college graduate with 16 years of schooling. The shaded cells indicate data that are actually observed by researchers, while the other (unshaded) cells are true values that are hidden from the researcher.
|
Year School
|
Information for Tim
|
Information for Mark
|
|
Wage
|
MRR
|
Wage
|
MRR
|
|
12
|
$600
|
0.19
|
$642
|
0.24
|
|
13
|
$678
|
0.13
|
$764
|
0.19
|
|
14
|
$759
|
|
$893
|
0.17
|
|
15
|
$813
|
0.07
|
$1,019
|
0.14
|
|
16
|
$845
|
0.04
|
$1,100
|
0.08
|
|
17
|
$853
|
0.01
|
$1,166
|
0.06
|
|
18
|
$853
|
0.00
|
$1,201
|
0.03
|
a. Calculate Tim's MRR of the 14th year of schooling, being sure to show all computations.
b. How many years of school would Mark choose if he faced an interest rate of 12.5% (0.125)? Explain briefly. (Full credit requires a diagram).
c. Public policy discussions on income inequality often involve suggestions that every student today needs to obtain a college degree. Address briefly this contention, being sure to compare how a researcher might estimate a "naïve" MRR to a college degree for Tim with the true MRR. (Your brief explanation can be accompanied either by some mathematical/algebraic computations, or a diagram.)