When estimating wage equations, we expect that young, inexperienced workers will

Question

When estimating wage equations, we expect that young, inexperienced workers will have relatively low wages and that with additional experience their wages will rise, but then begin to decline after middle age, as the worker approaches retirement age. This lifecycle pattern of wages can be captured by introducing experience and experience squared to explain the level of wages. Denote by WAGE = beta_1 + beta_2 EDU + Beta_3 EXPER + Beta_4EXPER^2 + epsilon (a) What is the the marginal effect of EXPER on wages? (b) What signs do you expect for each of the coefficients Beta_2, Beta_2, Beta_3, and Beta_4? Why? (c) Find the average EXPER after which wages start to decline. (Express your answer in terms of Beta's.)

Explanation / Answer

Part-a

Marginal effect = 3+2*4EXPER

Part-b

The 2 is positive as education has positive impact on wage

As for exper first wage rise and then after middle age it starts declining, so we expect 3 positive and 4 negative

Part-c

He average EXPER after which wages start to decline = 3/(2*4)

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