I do not understand the statistical equation of this economics question. Please

Question

I do not understand the statistical equation of this economics question. Please explain the significance of each variable (Log, wi, beta, etc) and how they work. Are they being used to graph? I'm completely clueless. thank you

If there are workers of differing ability in the population then testing using the model: where S is years of schooling, would understate the returns to schooling. True or False, explain. This madel assunes that all workers have the ce scholin loI Workers have differinaabilities they will ach have their As you can sec on the the above eauntion would over state the reuns to schooling becase if the ow pility worker were o increa

Explanation / Answer

from the question it is said that there is some sort of relation between wage(w) and no. of schooling (S). it is said that the locus of wage (W) wil depend on the number od schooling done by the worker.

Beta (B1) states that, if the years of schooling increase by 1 unit, the wage should increase by Beta (B1) units.

but since wage and years of schooling is not linear, log function it used. this is what is shown in the graph also. how different workers has different locus(equilibrium) and how the wage change with change in years of schooling.

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