Complete problem 6.28 at the end of Chapter 6 in the text. Completely answer sections a-g (solution)

Feb 3rd, 2012
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Focus of the Final Project 6.28. Based on the Current Population Survey (CPS) of March 1995, Paul Rudd extracted a sample of 1289 workers, aged 18 to 65, and obtained the following information on each worker: Wage = hourly wage in $ Age = age in years Female = 1 if female worker Nonwhite = 1 if a nonwhite worker Union = 1 if a union member Education = years of schooling Experience = potential labor market experience in years The full data set can be found as Table 6-16 on the textbook’s Web site. a. Based on these data, estimate the following model, obtaining the usual regression statistics. 1n Wagei = B1 + B2 Age + B3 Female + B4 Nonwhite + B5 Union + B6 Education + B7 Experience + ui where 1n Wage = (natural logarithm of Wage) b. How do you interpret each regression coefficient? c. Which of these coefficients are statistically significant at the 5% level? Also obtain the p va..................................................................................

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TitleStudent's name:Course name:Course no.:Instructor's name:Date submitted:a) From the above data, we first find the natural log of the wage and then regress it on the other variables.The regression equation is of the form:ln Wagei = B1 + B2 Age + B3 Female + B4 Nonwhite + B5 Union + B6 Education + B7 Experience + uib) The above result shows that the variable age is omitted due to presence of collinearity. Hence the co-efficient of age is zero, i.e. B2 = 0. Now, the constant term or B1 is 0.9055 (approx.) This implies that even if all the independent variables are zero, the ln wage of the workers is 0.9055, i.e. they earn a wage of about 2.47 unitThe co-efficient of education (B6) is 0.99 ? 1. So education and wage is directly proportional. If the year of schooling increases by one more year, then the ln wage of the workers increases by almost 1 unit, i.e. their wages increase by 2.69 units. The co-efficient of experience (B7) is 0.128 (approx.) So if the experience of the workers increase by one year, then the ln wage of the workers increases by almost 0.128 unit, i.e. their wages increase by 1.14 units.Now, the coefficients B3, B4 and B5 are the coefficients of dummy variables. B3 shows how the wage of the females differs from the males. B4 shows the differences in wage among whites and the nonwhites while B5 shows the differences in wages among unionized and non-unionized workersc) All the coefficients except that of age are statistical

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