Suppose years of education, Ed, is the only variable that affects earnings. The equations for the weekly salaries of male and female workers are given by:

Wm = 60 + 10Edm and

Wf = 40 + 9Edf,

respectively. On average, men have 12 years of education and women have 13 years of education.

a. What is the average male-female wage differential in the labor market in dollars and in percent? (4 points)

b. How much of this wage differential is due to differences in average education between the two groups in dollars and in percentage terms? Note that there are two possible ways to calculate this, so just pick one.

c. How much of the wage differential is "unexplained"? Under what conditions would it make sense to interpret this component as measuring discrimination?