Economics 450
Assignment 4

Due: November 4, 2008 (11 am)

1. Using Current Population Survey data find the internal rate of return on a masters degree (for someone who already has a bachelors degree). Use data for full-time year-round workers for a particular race/sex group. Assume that it takes two years to get a masters degree, and that the only relevant cost is forgone earnings.

2. Borjas, Question 7-8 (page 290).
   Suppose there are two types of persons: high-ability and low-ability. A particular diploma costs a high-ability person $8,000 and costs a low-ability person $20,000. Firms wish to use education as a screening device where they intend to pay $25,000 to workers without a diploma and $K to those with a diploma. In what range must K be to make this an effective screening device?