Consider the following data for men and women: $$\begin{array} { l r r } & \text { Men } & \text { Women } \ \text { Average Hourly Wage: } & \$ 12.40 & \$ 9.90 \ \text { Average Years of Work Experience: } & 14.3 & 9.5 \end{array}$$ If a regression estimates the return to experience for men, ?_M, to be 0.25, how much of the average difference in wages can be attributed to differences in work experience and how much can be attributed to discrimination and/or unobservable characteristics?

Question

Quizplus · Accepted Answer

The difference in average years of work experience between men and women is 14.3 - 9.5 = 4.8 years. Given the return to experience is 0.25, the wage difference attributable to experience is 4.8 * 0.25 = $1.20. The total wage gap is $12.40 - $9.90 = $2.50. Therefore, the difference attributed to discrimination/unobservable characteristics is $2.50 - $1.20 = $1.30.

Consider the Following Data for Men and Women If a Regression Estimates the Return to Experience for Men