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ps4LaborEcon - Econ 4531 Spring2011 Problem Set 4 Due...

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Econ 4531 - Spring2011 Problem Set 4 Due Thursday April 28th (during lecture) For question 1, please use the same data set from previous problem set (laborEcon.dta) . Feel free to resample the data set if you think it is appropriate. 1. (35 points total) Consider the earning function in the form of a linear regression equa- tion we discussed before: ln ( w ) = α 0 + α 1 schooling + α 2 age + α 3 age 2 (1) where ln(w) is the natural log of earnings, α is the constant of the regression and α i , i = 1 , 2 , 3 are the parameters associated with schooling, age and age squared, respectively. Or in a more compact way, ln ( w ) = α + β X (2) where α is the constant of the linear regression and X the vector of observable charac- teristics (schooling, age, age 2 ), and β , the vector of parameters associated with those characteristics. (a) What are the ”expected” signs for α 1 , α 2 , and α 3 ? (b) Why it is common to include the variable age 2 ? Explain (c) Interpretate each coe cient, i.e α i i = 0 , 1 , 2 , 3 (d) Summarize the the statistics of these variables.
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