The estimated effect of going from 0 to 1 year of experience is equal to approx.

Question

The estimated effect of going from 0 to 1 year of experience is equal to approx. $18.84

What is the estimated effect of going from 20 to 21 years of experience? (show working)

. reg wage exper exper2 Number of obs - F(2, 932) 935 0.94 0.3901 0.0020 -0.0001 404.39 Source df MS Mode 308148.104 152408020 2 154074.052 Prob F Residual 932 163527.919 R-squared Adj R-squared Total 152716168 934 163507.675 Root MSE wage Coef. Std. Err. [95% Conf. Interval] -8.488265 -1.930714 708.07 46.16282 3425302 1014.895 1.35 0.176 exper exper2 -cons 18.83728 13.92375 5791669 861.4825 78.17148 -,7940922 . -1.370.171 -1 11.02 0.000 The estimated effect of experience first increases and then decreases with experience Note: Because the coefficient exper2 is not significant (p-value 0.171) we can't reject the null hypothesis that the effect of experience is linear However, we know from other datasets that the effect of experience on wage is inverse u-shaped.

Explanation / Answer

The Wages = 861.4825 + 18.83728 EXP - 0.7921 * EXP2

(a) WHen experience increae from 0 to 1 year

Wages (0) = $ 861.4825

Wages(1) = 861.4825 + 18.83728 - 0.7921 * 1 * 1= $879.53

so increase in wages = $879.53 - $ 861.48 = $ 18.05

(b) Wages(20) = 861.4825 + 18.83728 EXP - 0.7921 * EXP2

Wages(20) = 861.48 + 18.84 * 20 - 0.7921 * 20 * 20 = $ 921.44

Wages(21) = 861.48 + 18.84 * 21 - 0.7921 * 21* 21 = $ 907.80

so there is a decrease in wages when there is increase in experience at higher experience level

so it is right that shape is inverse U - shaped.

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