Patrik Guggenberger, 4/11/21

Labor Economics, Econ 412

Problem set 7

Due date: Sunday 4/18/21


Question 1. (25 points; use Excel or STATA) Is it worth going to college? Let's suppose that a typical college educated professional makes 83,000 dollars per year and a high school graduate makes 45,000 dollars per year. The direct costs of college (tuition, books, and so on) are 16,000 dollars a year (and a college degree takes 4 years). For the purpose of this exercise, consider that the earnings are constant until the age of 64; and thereafter, the earnings are zero.

(a) Suppose that John is now eighteen, and he is contemplating the possibility of going to college. Should he go? Use a discount rate of 9 percent for your calculations. You should have 47 terms in the sum of the present value, one term for each year that elapses between ages of 18 and 64.

(b) Now suppose that he is also a good boxer. However, boxing is a risky sport, and at most he can box until the age of 35. The contract that he can get is 200k dollars a year. Using the same discount rate as before, namely 9%, what should he do? Show your calculations.


Question 2. (25 points) (signaling, screening) Borjas 6-8 and 6-9


Question 3. (25 points) (again "ability bias", read Section 6.5 in the textbook) Borjas 6-13.


Question 4. (25 points total; data work on unemployment)

Collect data from 1995-today from the sites:

-  Unemployment Rate: 

   http://data.bls.gov/timeseries/LNS14000000

-  Unemployment Rate - High School Graduates:

   http://data.bls.gov/timeseries/LNU04027660

-  Unemployment Rate - Some College:

   http://data.bls.gov/timeseries/LNU04027689

-  Unemployment Rate- Bachelor's degree and higher:

   http://data.bls.gov/timeseries/LNU04027662

(a) Plot the unemployment rate (x-axis years, y-axis the unemployment rate). Is it true that the unemployment rate was the highest during the Great Recession (the recession that occurred during 2007-2008)? (13 points)

(b) Plot the unemployment rate by education level on the same graph. Is the statement that the level of unemployment is higher for workers with lower levels of education true? (12 points)