Question

Suppose there are two types of person, Type M and Type F. Suppose a researcher named Smith is interested in analyzing possible pay discrimination between the two types of person. With a representative sample of observations from a reliable survey, suppose Smith estimates that monthly earnings (W) are related to schooling (S) as follows: W_M = 895 + 210S_M, W_F = 905 + 180S_F,where the subscripts “M” and “F” stand, respectively, for “Type M” and “Type F”. Suppose SMexhibits a mean value of 15.2 years. Suppose SF exhibits a mean value of 15.9 years. Is there a pay gap, and if so, how big is it? Demonstrate and explain. If there is a pay gap, how much of it cannot be “explained,” meaning how much appears to be due to discrimination? First, demonstrate exactly the method one could use to go about making such calculations. Second, make the calculations and explain your findings. Will Smith conclude that pay discrimination is a serious problem? Explain why or why not.

Answer 1

Part-1

Here there are two types of person in the research: Type M and Type F.

Monthly Earnings of Type M: WM=895+210SM

Monthly Earnings of Type F: WF=905+180SF

In these estimated regression functions, the dependent variable is Monthly Earnings and the independent variable is years of schooling. Now as indicated by the equation of Type M person, for additional 1 year of schooling experience the monthly earnings of Type M person increases by 210(Notice the coefficient of SM is 210). Thus, education has a singnificant impact on the monthly earnings of Type M persons.

Similarly, for additional 1 year of school education/experience the monthly earnings of Type F person increases by 180 (As the coefficient of SF is 180). Thus, we can say based on the research that education does have an impact in influencing the monthly earnings of Type F persons.

Therefore, cosnidering the effect of school education/experience, the average pay gap between type M and Type F persons= (210-180)=30 which can be significant/insignificant depending on the sample size used in the research and which particular type/s of industry we are considering in this instance. But generally, the pay gap of 30 is not huge enough and as we can see the mean school education/experience of both types of persons are fairly close, 15.2 years and 15.9 years (less than 1 year).

Part-2

WM= 895+210SM

WF=905+180SF

Notice in the equation estimating WM, the intercept is 895. In other words, when SM=0 WM=895. It indicates that when the effect of school education/experience is 0 or when Type M persons has no schooling at all still he/she is able to earn 895. Therefore, this monthly earning of 895 cannot be explained by the effect of school education/experience.

Similarly, the intercept in equation estimating WF is 905 meaning that even if Type F persons don't have any kind of school experience or education he/she is still earning 905 per month. Therefore, this earning of 905 per month cannot be explained by the effect of impact of schooling.

The part of the monthly salary that cannot be explained by educational experience can probably be attributed to other/non-educational factors such as professional/previous job experiences (especially odd jobs or low paid jobs), personal skills, specialized vocational courses/trainings, internships and so forth.Therefore, as observed by Smith, pay discrimination is not evidently huge (average pay of gap of only 30 due to education and 10 due to non-educational factors) but we cannot only rely on school education/experience to explain this pay discrimination. As stated above, it is important that the research encompasses other issues or factors that are influential in our society or professional world.