a)Compute the observed annual wage premium associated with a high school diploma. (5 points)

b)Explain in one short paragraph why the observed wage premium may overestimate the effect of high school diploma in earnings. (7.5 points)

c)Compute an unbiased annual wage premium associated with a high school diploma. Explain your solution in detail, step by step. (10 points)

d)Explain in one short paragraph, how one may obtain an unbiased estimation of the wage premium associated with a high school diploma working with observed data (like parta) or, alternatively, working with experimental data. (7.5 points)

2. Consider the wage-schooling loci below for Adam and Ben, A and B respectively. The variable EDU measures the number of years for educational attainment. Let's assume that Adam drops out of high school after 10 years of schooling and that Ben nishes high school after 12 years of schooling. We also assume that neither Adam nor Ben pursue any irther education. a) b) C) d) Wage-Schooling Loci 60000 seamen 50000 3 WSL{A} WSL{BJ Net Annual Eamlngs 8 3 100m 10 11 12 13 14 15 16 1? 18 EDU Compute the observed annual wage premium associated with a high school diploma. (5 points) Explain in one short paragraph why the observed wage premium may overestimate the effect of high school diploma in earnings. (7.5 points) Compute an unbiased annual wage premium associated with a high school diploma. Explain your solution in detail, step by step. (10 points) Explain in one short paragraph, how one may obtain an unbiased estimation of the wage premium associated with a high school diploma working with observed data (like part a) or, alternatively, working with experimental data. (7.5 points)