The approximate difference δ between the earnings of

Info icon This is a preview. Sign up to view the full content.

10. The approximate difference ( Δ ) between the earnings of individuals whose look are rated “homely” and individuals whose looks are rated “average” is (in percentage terms):
Image of page 2
Economics 420 (section 3) Professor Woodbury Fall Semester 2016 Answers to Quiz #8 10. E See the next page for answers to questions 6, 7, and 8.
Image of page 3
Answers to 6, 7, and 8: ln( wage ) is quadratic in experience, so take the derivative of ln( wage ) with respect to exper : ln( wage ) = β 0 + β 1 educ + β 2 exper + β 3 exper 2 + u so ln( wage )/ exper = β 2 + 2 β 3 exper Plugging in the estimates for β 2 and β 3 gives ln( wage )/ exper = 0.0485 + 2(–0.0007) exper #6 asks for the expected change in earnings [ Δ ln( wage )] associated with 1 additional year of experience for someone who has no experience (that is, exper = 0). So set exper = 0 in the equation for ln( wage )/ exper : ln( wage )/ exper = 0.0485 + 2(–0.0007)(0) ln( wage )/ exper = 0.0485 or 4.85% #7 asks for the expected change in earnings [ Δ ln( wage )] associated with 1 additional year of experience for someone who has 25 years of experience (that is, exper = 25). So set exper = 25 in the equation for log(wage)/ exper : log(wage)/ exper = 0.0485 + 2(–0.0007)(25) log(wage)/ exper = 0.0485 – 0.035 = 0.0135 or 1.35% #8 asks for the turning point in the wage-experience profile, so set ln( wage )/ exper = 0 and solve for exper *: ln( wage )/ exper = 0.0485 + 2(–0.0007)( exper ) = 0 => 0.0485 =(0.0014)( exper *) => exper * = 34.6 So the wage experience profile increases for 34.6 years, reaches a maximum, then turns down. For more on quadratic relationships, see section 3 of <18,19-model specification.pdf>, and/or section 6.2 of Wooldridge.
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern