assignment4_solution - University of California, Santa...

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University of California, Santa Barbara Olivier Deschenes Department of Economics Winter 2011 Economics 140B Individual Assignment 4: Answer Key Due in class 03/01/11 Question 2: This question will ask you to investigate the impact of fertility on the labor supply of married women. The data are from the 1980 U.S. Census and the data extract “Fertility.dta” contains information on the fertility, family composition, and labor supply of married women. Information on the data set and variables is contained in the file “Fertility_Description.pdf”. (a) Regress Weeksworked on the indicator variable Morekids using OLS. On average, do women with more than two children work less than women with exactly two children? How much less? ANSWER: . reg weeksm1 morekids, robust Regression with robust standard errors Number of obs = 254654 F( 1,254652) = 3820.91 Prob > F = 0.0000 R-squared = 0.0143 Root MSE = 21.71 ------------------------------------------------------------------------------ | Robust weeksm1 | Coef. Std. Err. t P>|t| [95% Conf. Interval] -------------+---------------------------------------------------------------- morekids | -5.386996 .0871491 -61.81 0.000 -5.557806 -5.216186 _cons | 21.06843 .0560681 375.76 0.000 20.95854 21.17832 ------------------------------------------------------------------------------ Women with two or more children work 5.4 weeks less than women with fewer than two children. The estimate is significant at the 1% level (p-value = 0.00) (b) Explain why the OLS regression in (a) is inappropriate for estimating the causal effect of fertility ( Morekids ) on labor supply ( Weeksworked ). [Hint: Recall the “threats to internal validity”] ANSWER: The issue with running the regression in part (a) is that morekids is an endogenous variable. Women who want to work may choose to have fewer children and visa-versa. This implies that morekids is correlated with the error term, creating bias in the estimate.
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(c) The data set contains the variable Samesex , which is equal to 1 if the first two children are of the same sex (boy-boy or girl-girl) and equal to 0 otherwise. Are those couples whose first two
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assignment4_solution - University of California, Santa...

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