1. Suppose that a statistically discriminating firm offers new employees a wage

Question

1. Suppose that a statistically discriminating firm offers new employees a wage that is based on the combination of their individual score on a test(7) and the average score on the same test among all members of their racial group () according to the following formulas Wage offered to blacks GxT)+GxT) Wage offered to whites= (2 XT) + T Further assume that, due to low quality schools and historic efforts to prevent blacks from obtaining education, the average test score among blacks is lower than the average test score among whites: ': 20 forblacks T = 40 for whites Use this information to answer the following questions: a. If a black employee and a white employee both receive a score of 30 on the test, what wage will they each be offered?

Explanation / Answer

1) wage offered to black when T bar = 20

For white T bar = 40 if both score 30 on test then the wage offered will be (T+3T bar)/4= (30+3*20)/4= 22.5

For white will be (T+T bar)/2= (30+40)/2= 35

2)For black workers if they go to college their test score will be 40 therefore adjusted wage for black is (T +3* T bar)/4= (40+3*20)/4= 25

Hence the wage would be improved by 9.9% from 22.5 to 25

3)

For white workers new wage if T = 40 then T =40 for white it is improved from 35 to 40

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