2 Of 3 re interested in investigating the effect of individual\'s hukou sta- sus

Question

2 Of 3 re interested in investigating the effect of individual's hukou sta- sus rural) on his income level. To that end, you set up the follow ing regression model: income-, ?0 + ?0urban + ?|education + ?2experience ?? urban-education+ ?2urban-experience + u, where education and experience are the years of schooling and working experi- ence an individual has attained, respectively, urban is a dummy variable that takes value one if the individual has urban hukou, and income is the income of the individual's income (measured in RMB) (a) How do you interpret the parameters ??, ?1 and ?2? (b) Suppose education has positive impact on income ,then, if you suspect the effect of education on income is larger for individuals with urban status, how would you set up the test? Suppose experience also has positive im- pact on income, and if you suspect the effect of experience on income is the same for all individuals, regardless his hukou status, how would you set up the test? (c) Ifyou suspect the following baseline wage function, income = A)+A education p2experience, is different for individuals with different hukou status, what test would you use to test your hypothesis? Clearly state the hypothesis and the test statistics you will use to perform the test. (d) Suppose you suspect that gender also plays a role on the individual's in- come. Using the dummy variable male that takes value one if the indi- vidual is male, how would you change the following regression model to investigate whether or not the effect of education is larger for male indi- viduals with urban houkou status? income Po + ?0urban + Yomale + ?0urban-male + ?|education ?? urban-education + Y1 male, education + u

Explanation / Answer

13(a) dummy variable for urban hukou

This represents the presence of a categorical effect 'urban'. It is used to distinguish a different subgroup, or, a treatment group.

??0,??2, ??1 ------------- Dummy variables for urban, experience, and, education respectively. These represent the categories, and, are control values for the value of the dependent variable income owing to the person's status being urban or rural. Interaction terms are created with the presence of more than one of these dummy variables.

3(b). ??1, and, Beta 2 variables in the regression model add to the value of the income

3(c) urban status dummy variable

ANOVA tests using this regression model

??0 = 0 urban status influences

??1 = 1 urban status does not influence

4.

?0 - urban male

interaction between dummy variables for urban status

3(d)

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