7.20. Basic Econometrics (Gujarati) In a study of turnover in the labor market,
ID: 1211913 • Letter: 7
Question
7.20. Basic Econometrics (Gujarati)
In a study of turnover in the labor market, James F. Ragan, Jr., obtained the following results for the U.S. economy for the period of 1950-I to
1979-IV.* (Figures in the parentheses are the estimated t statistics.)
lnY = 4.47 - 0.34 ln X2t + 1.22 ln X3t + 1.22 ln X4t (4.28) (-5.31) (3.64) (3.10)
+ 0.80 ln X5t - 0.0055 X6t R2 = 0.5370 (1.10) (-3.09)
Note: We will discuss the t statistics in the next chapter.
where Y = quit rate in manufacturing, defined as number of people leaving jobs voluntarily per 100 employees
X2 = an instrumental or proxy variable for adult male unemployment rate
X3 = percentage of employees younger than 25
X4 = Nt-1 / Nt-4 = ratio of manufacturing employment in quarter
(t - 1) to that in quarter (t - 4) X5 = percentage of women employees X6 = time trend (1950-I = 1)
a. Interpret the foregoing results.
b. Is the observed negative relationship between the logs of Y and X2 justifiable a priori?
c. Why is the coefficient of ln X3 positive?
d. Since the trend coefficient is negative, there is a secular decline of what percent in the quit rate and why is there such a decline?
f. Can you estimate the standard errors of the regression coefficients from the given data? Why or why not?
Explanation / Answer
a) Quit rate depends upon 5 factors
b) X2 will have negative relationship because naturally if unemployment ratio is higher i.e. lesser people are getting job then lesser people will quit.
c) X3 is positive because younger employees less than 25 have a much higher probability of changing jobs till they find the right match.
d) LnY will decrease by 0.0055 or 0.55% secularly. This is because of labor legislation and greater union power and also because increasing fixed cost employers like to retain employees.
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