Consider the signalling model of educational choice

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Consider the signalling model of educational choice. Imagine a society where you have two groups of people: majority group comprising more than half of the population, and a minority group comprising less than a half of the population. People in this country also differ by ability levels - they can can be of low and high ability, and both minority and majority groups include high and low ability people. Assume that a low ability majority individual has the same productivity as a low ability minority individual (both have marginal productivity of 5) and a high ability majority individual has the same productivity as a high ability minority individual (both have marginal productivity of 10). Half of all majority workers and half of all minority workers are high ability. The firms do not observe workers’ ability levels.

 

Firms assume that majority individuals with bachelor’s degree must be high ability workers. However, because minority households have less wealth on average than majority households, firms do not assume that minority workers with less than bachelor’s degree are low ability (as it may instead simply reflect the greater cost of education for those from families with fewer resources). As a result, firms pay different wages to majority workers based on their education, but treat all minorities the same regardless of their education.

 

Assume that the cost of getting bachelor’s degree is 3 for high ability worker and 6 for low ability workers.

 

Assume that the firms pay workers their marginal product when worker’s ability is reliably revealed by their educational choices. If the ability is not known, the worker is paid her expected marginal product.

 

What wages will firms pay to majority workers with a bachelor’s degree? Submit the answer rounded to the nearest integer.