321_09_slides5

321_09_slides5 - Summary Chapter 2 Estimation of a 2...

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Summary Chapter 2 Estimation of a 2 variable relationship Beta OLS definition and derivation R2 Functional form and interpretation of the betas E( ) and Var( ) Properties of beta: BLUE Best linear unbiased estimator Among the list of all linear unbiased estimators, OLS estimator has the smallest variance Based on a list of assumptions Econ 321-Stéphanie Lluis 1
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Multiple Regression Chapter 3 Part I Econ 321 Introduction to Econometrics Econ 321-Stéphanie Lluis 2
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Outline Multiple Regression Interpretation of the Results Omitting variables Adding Irrelevant variables Econ 321-Stéphanie Lluis 3
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Moving to Multiple Regression In a bivariate analysis context, the analysis assumes that only X matters for Y all other factors (potentially affecting Y) are in the error term and are not correlated with X In a multiple regression context we take into account the fact that multiple factors simultaneously affect Y We can conduct a “ceteris paribus” analysis We can control for other factors Crucial given that we deal with non experimental data
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Analysis of Union effect on Weekly Earnings Categorical variable union=1 if the worker is unionized or covered by collective bargaining agreements union = 0 if not
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Econ 321-Stéphanie Lluis 6 Log(wage)= β 0 + β 1 cbc2 + u Workers that are unionized (or covered by collective bargaining agreements) earn 24.88% more than workers that are not
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Adding Variables The individual effects of the new variable added ( β 2 β 3, …) for X 2 , X 3 The effect of the main variable of interest X 1 ( β 1 ) changes Econ 321-Stéphanie Lluis 7
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Econ 321-Stéphanie Lluis 8 Log(wage)= β 0 + β 1 cbc2 + β 2 age + u Controlling for age , workers that are unionized (or covered by collective bargaining agreements) earn 20.15% more than workers that are not Adding Age to the Equation
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Adding Education and Gender Econ 321-Stéphanie Lluis 9 Union members tend to be male, older and have higher educational attainment. Once we control for those factors, the estimated union wage premium is lower The coefficient associated with the Female variable indicates that women earn 21.51% less than male workers with similar age, education and union status
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321_09_slides5 - Summary Chapter 2 Estimation of a 2...

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