In class we will discuss the idea of counterfactuals and the distinction between correlation and causation. A foundational question in the field of labor economics is: does having more years of education lead a person to earn a higher wage/salary? Understanding the answer to this question could be useful to, for example, a policymaker who is considering whether to expand the number of years of public education in their community.

a) Say that we found that people with more education had higher earnings. Suggest a possible causal explanation for that finding, and then a different possible explanation that be only a correlation and not causal.

b) Carefully explain a counterfactual thought experiment that would help you to understand if the causal explanation was correct. What makes your thought experiment difficult to actually conduct in reality?