3. Consider Figure 9-6 which shows the present value of lifetime earnings (PVE) firms are willing to offer to workers wh

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3 Consider Figure 9 6 Which Shows The Present Value Of Lifetime Earnings Pve Firms Are Willing To Offer To Workers Wh 1 (47.7 KiB) Viewed 32 times

3. Consider Figure 9-6 which shows the present value of lifetime earnings (PVE) firms are willing to offer to workers who have attained different levels of education. Those workers who have completed 16 years or more of education (4 or more years after high school) will be offered a wage Icading to a present value of lifetime income of $2,000,000 (PVE2), while those completing less than 16 years of education will be offered a wage leading to a present value of lifetime income equal to $1,000,000 (PVEI). Lines CA and CB show the total cost of different levels of education for two types of workers. Type A workers are low-productivity workers while type B workers are high-productivity workers. 24 PV (100 000 BARA 14 15 16 Education you Figure 9.6 a. What is the net benefit (1.c., the difference between the PVE and the cost of education) a type A person would derive from attaining 16 years of education? What would be the net benefit for A from 12 years of education? What is the optimal level of education for a type A person? b. What is the net benefit a type B person would derive from attaining 16 years of education? What would be the net benefit for B from 12 years of education? What is the optimal level of education for a type B person? c. Is 16 years of education an effective way to distinguish low-productivity workers from high productivity workers? d. Suppose firms lowered the cutoff for the higher wage job to 14 years of education. What level of education would type A workers attain? What level of education would type B workers attain? Would the level of education be an effective signal of worker productivity? c. Suppose firms raised the cutoff for the higher wage job to 18 years of education. What level of education would type A workers attain? What level of education would type B workers attain? Would the level of education be an effective signal of worker productivity?