The following Mincer equation has been used to estimate wages: In (Y) = a +BEDUCATION; + B2EXPER+ B3EXPER,2 + ei where Y is observed wage, EDUCATION is years of education and EXPER is years of work experience. If you suspect that males earn higher wages than females and that the male wage premium increases with EDUCATION, how would you adjust the wage model econometrically? Write the new model formally and explain how the coefficients should be interpreted. (10 Marks) b. A large company is accused of gender discrimination in wages. The following model has been estimated from the company's human resource information In(WAGE) = 1.439 +.0834 EDU +.0512 EXPER+.1932 MALE Where WAGE is hourly wage, EDU is years of education, EXPER is years of relevant experience, and MALE indicates the employee is male. How much more do men at the firm earn, on average? What hypothesis would you test to determine if the firm is discriminating against female employees?
