Econ 140 B Assignment 2

Econ 140 B Assignment 2 - Willy Lin Econometrics HW 2 1. a....

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Willy Lin Econometrics HW 2 1. a. The effect of one additional year of education on earnings is ambiguous because of the exponential nature of the model. For instance, with 0 years of education average earnings are $1.72/hr and with 1 year of education, the average earnings increases $0.14/hr to $1.86/hr. But the increase from 2 years of education to 3 years of education, nearly doubles that amount, increasing wage from $2.03 to $2.39. Thus, the impact of one more year of education is unclear unless the specific number of years is explicit. One way to modify the equation to differentiate high school education and college education is by using HSEduc and CollEduc instead of one variable to account for education. The ‘diploma effect’ is an intuitive conclusion since years of education at any institution is not significant as obtaining a diploma that signifies the completion of education. Another reason that a diploma effect exists is that a student may spend 7 years at a college institution, but not obtain a diploma, which would not increase his average earnings/hr. Therefore in order to
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This note was uploaded on 09/04/2011 for the course ECON 140b taught by Professor Staff during the Winter '08 term at UCSB.

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Econ 140 B Assignment 2 - Willy Lin Econometrics HW 2 1. a....

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