Lecture+5+Regression+with+dummy+variables

# Isexpectedwagewhenfemale0andblack0thatisforwhitemale

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: fficient represents the mean wage difference between male college grads and male non‐college grads. 4 o Keep in mind that the coefficients for simple dummies indicate difference from the base group. Quiz: What does δ 3 mean? Specifically: 1) Wage for male non‐college grads wage = α + β X + u. female = 0, colgrad = 0, 2) Wage for female non‐college grads wage = α + δ 1 + β X + u. female = 1, colgrad = 0, So δ1 is the mean wage difference between female non‐college grads and male non‐college grads. 3) Wage for male college graduates wage = α + δ 2 + β X + u. female = 0, hsgrad = 0 and colgrad = 1, So δ 2 is the mean wage difference between male college grads and male non‐ college grads. 4) Wage for female college graduates female = 1, hsgrad = 0 and colgrad = 1, wage = α + δ1 + δ 2 + δ 3 + β X + u. So δ1 + δ 2 + δ 3 is the mean wage difference between female college grads and male non‐college grads. Example2: How to interpret the intercept and slopes in the following model? wage = α + β1 female + β 2black + β3 female * black + u. α is expected wage when female=0 and black=0, that is for white male. What does β1 mean? What does β 2 mean? What does β 3 mean? 5 Example3 (Difference in differences, aka, DID estimation): Suppose that CA has passed a law requiring employers to pay for career‐related depression consultation for women. You are concerned that employers will decrease women’s wages in order to pay for this new benefit. You find a data set that has data on wages from the year before the law took effect and the year after. The mean hourly wages for various groups are as follows: men women before \$10 \$8 after \$12 \$9 Suppose you estimate the following model: wage = α + β1after + β 2 women + β3after ∗ women + u, where after and women are dummies indicating the year after the law took effect and a woman respectively. What are your estimates of α , β1 , β2 , and β3 in the above model? A Dummy Interacted with a Continuous Variable Can also consider interacting a dummy variable, d, with a continuous variable, X; i.e., the impact of X on Y depends on d. Y=α +δ 0 d + β1 X + δ1d * X + u If d = 0, then Y = α + β X + u If d = 1, then Y = (α + δ 0 ) + (...
View Full Document

Ask a homework question - tutors are online