Suppose for now that schooling s is the only variable that affects earnings and that the equations giving the weekly wages (measured in ) of white and black workers are given by:

ww= 400+ 100 s and wb= 200 + 75 s

On average white workers have 14 years of schooling and black workers 12 years of schooling.

a) What is the black white mean wage differential in the labour market?

b) Using the Oaxaca decomposition, calculate how much of this differential is due to unobserved factors, that could be interpreted as a measure of discrimination. Briefly explain your working.

c) A friend mentions that years of schooling is not the only way in which black and white workers differ and suggests you also account for the type of school and university attended by black and white worker. Do you think this is a good idea in order to isolate the impact of discrimination on wages?