Consider the following estimated regressions: log(wage)-1 + 0.05union wage 30 +

Question

Consider the following estimated regressions: log(wage)-1 + 0.05union wage 30 + 10union union 0.2 0.0510 union-0.20.05log(IQ) log(wage) -1 + 0.93 log(educ) + 0.04exper -0.0006exper2 0.17female - 0.011female * exper where, wage is in dollars per hour, union is a dummy variable that takes 1 when the worker is unionized, IQ is in points, education and experience are in years and female is another binary variables that takes the 1 when the worker is female, (a) Provide an interpretation for the coefficient on union in equations (1) and (2). How are they different? (b) Provide an interpretation for the coefficient on IQ in equations (3) and (4). How are they different? In the following, you need to be explicit about the ceteris paribus assumption (c) Provide an interpretation for the coefficient on educ in equation (5) (d) What is the marginal contribution of experience to log(wage) in equation (5)? Is this contribution constant or it depend on other factors? (e) What is the marginal contribution of female to log(wage) in equation (5)? Is this contribution constant or it depend on other factors? (f) Provide an interpretation for the coefficient on experience in equation (5) (g Provide an interpretation for the coefficient on experience in equation (5) (h) Provide an interpretation for the coefficient on female in equation (5) i) Provide an interpretation for the coefficient on the interaction between 'female and experience in equation (5)

Explanation / Answer

a. In eq 1, the presence of union implies that the predicted log(wage) increases by $0.05.

Similarly, in the eq 2, the presence of union implies that the predicted wage changes by $10

b. (b) Eq (3) : For a unit increase in IQ, the unionization increases by 0.05.
Eq (4): For a 1 percent increase in IQ, the unionization increases by 0.05.

c. Holding all other variables constant, the eq (5) states that for 1 percent increase in education years, the wage increases by 0.93%.

d. Ceteris paribus, the marginal contribution of experience in eq (5) is given by:

wage/dwage = 0.04 - 2*0.0006*exper - 0.011*female
As we can see, the marginal contribution of experience on percent change in wage also depends on other factors such as existing experience and whether the worker is female.

PS: According to Chegg rules, in the event of multiple sub-parts of a question only first 4 are attempted.

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