Ne Bpecing Headig 1Heading 2 20 Heading LABOR ECONOMICS HOMEWORK SET #4 40 PTS D

Question

Ne Bpecing Headig 1Heading 2 20 Heading LABOR ECONOMICS HOMEWORK SET #4 40 PTS DUE: APRIL 18, 11:35 am NAME Show calculations!! 1. (Education and training) (16 pts) An 18-year-old high school graduate has the following two options: go to work or go to college first. He has the following incomes in a two- period case: OPTION work College then work Period 1 $40,000 540,0030000$40000 Period 2 $40,000 . 20,000 Note the Period I income in the "College then work" option is a negative number (-$20,000). a. Using the financial (schooling) model, if his discount rate is 10 percent, determine whether he will go to work or go to school. Again using the financial model, if his discount rate is 40 percent, determine whether he will go to work or go to school. b. 2. (Roy migration model) (12 pts) 1 of 2 Words 0 of 315

Explanation / Answer

1.

a. Discount rate = 10%

Present value if work = 40,000 + 40,00/1.1

= 76363.636

Present value if goes to College = -20,000 + 100,000/1.1

= 70909.1

Since present value of work is more then that of going to college

Hence, Will work.

b. If Interest rate 40%

Present value if work = 40,000 + 40,00/1.4

=68571.42

Present value if goes to College = -20,000 + 100,000/1.4

= 51428.571

So, Will work

2.

A high skill persom will migrate as

his in home country = 6000 + 2000s = 6000 + 2000*20 =

= 46000

Income in Destination Country = 5000 + 3000*20

= 65000

So income is more in destination county , hence will migrate

b. Positive selection

3.

a. Difference due to Education = 0.6*15 - 0.5*15 = 9 - 7.5 = 1.5

b. Difference due to discrimination = 12 -10 = 2

If you don't understand anything , then comment , I will revert back on the same. :)

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