5. Suppose the following wage regression is run where the results are presented
ID: 1163503 • Letter: 5
Question
5. Suppose the following wage regression is run where the results are presented in a table below:
Wage = b0 + b1*Male + b2*Age + b3*Grade + b4*Married + b5*Experience
where the variables are as defined in class. Refer to the empirical results when answering the questions.
Coefficients
Standard Error
t Stat
Intercept
-7.856
0.404
-19.444
Male
1.845
0.093
19.793
Age
0.123
0.015
7.902
Grade
0.677
0.021
31.920
Married
0.713
0.099
7.133
Experience
0.0096
0.0003
26.003
a) By how much will wages change with an additional year of education?
b) Suppose male are systematically more likely to be in a union than females and that union wages are higher than non-union wages. What effect will re-running this regression with a union dummy variable included have on the male coefficient?
Coefficients
Standard Error
t Stat
Intercept
-7.856
0.404
-19.444
Male
1.845
0.093
19.793
Age
0.123
0.015
7.902
Grade
0.677
0.021
31.920
Married
0.713
0.099
7.133
Experience
0.0096
0.0003
26.003
Explanation / Answer
a) the coefficient on grade is 0.677 which gives the change in average wage due one year change in education years.
Wages change by 0.677 units with additional years of education.
b) when we will rerun the regression with union dummy variable included, the coefficient on males will get lower. This happens because earlier males variable was showing effects of both gender and union. Now when union variable is included separately, part of the difference between wage earning between males and females is explained by union and other part is explained by males variable.
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