Question

Alternative explanations of wage disparities

Suppose that a labor economist performs a statistical analysis on economywide worker wages using standard, measurable explanatory factors, such as job characteristics, years of schooling, and so forth.

How much of the variation in worker wages can be accounted for by such measurable explanatory factors?

About 0%

Somewhat more than 60%

Somewhat less than 50%

Nearly 100%

Which of the following factors are typically omitted from the quantitative analysis of wages but can help explain otherwise unaccounted-for disparities? Check all that apply.

Natural ability

Age

Attractiveness

Political opinions

Effort

Answer 1

a) Usually in such cases, the standard, measurable traits can account for roughly less than 50% of the total variation in the wages.

b) Typical variables omitted from the quantitative analysis of wages are the ones that cannot be measured or directly observed (unobservable factors) or are normaltive in nature.

From the given list we can choose three variables that fall in the above list i.e.

1. Chance
2. Natural ability
3. Attractiveness

Chance is a random factor that influences the salary one negotiates and gets, the kind of job one tries for and gets, the interview panel etc.It is both unobservable and cannot be quantified. Next, our innate natural ability differs from person to person.Similarly,  attractiveness can be observed, but its impact on certain kinds of jobs/professions can neither be measured nor justified without adequate research.All these factors are normative in nature.