(16 points) Krueger (1992) estimates the gains in productivity from having a com
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Question
(16 points) Krueger (1992) estimates the gains in productivity from having a computer at
home. His estimated equation is
log(wage) = B0? 0.026CompHome?0.049GPA?0.070black
where log(wage) is the log of hourly wage, CompHome is an indicator equal to 1 if they have
a computer at home and 0 otherwise, GPA is their high school GPA, and black is an indicator
variable equal to 1 if they are black and 0 otherwise.
(a) (5 points) Interpret the estimated coefficiient on CompHome.
(b) (5 points) Interpret the estimated coeficcient on black.
(c) (6 points) It is likely that a persons high school GPA does not perfectly control for their
ability. What do you think the correlation between ability and log(wage) is? What do
you think the correlation between ability and CompHome is? Based on these answers is
it likely that the estimated coefficient on CompHome is too large or too small?
Explanation / Answer
a. Coefficient of CompHome i.e. -0.026 means that if the person has a computer at his home then the log(wage) will decrease by 0.026 units. This means that the presence of computer at home leads to a decrease in the wage of a person.
b. Coefficient of Black i.e. -0.070 means that if the person is black then the log(wage) will decrease by 0.070 units and the log(wage) will be 0.070 units less than the person who is not black. This means that being black leads to a decrease in the wage of a person.
c. Yes it is possible so because ability is not just determined by a person's GPA. GPA is an indicator of academic abilities and acumen whereas ability can be pertaining to any field or aspect which may or may not be academic.
I believe people with greater abilities are or should be paid more wages there with increase in the ability the log(wage) should increase.
I believe there should be a fair positive correlation between ability and Comphome because having a computer at home enhances ones productivity, provides knowledge, opens avenues and gives access to plethora of aspects.
Based on these the coefficient of Comphome should be positive according to me because having a compute is expected to enhance ability which in turn demands and deserves higher wages.
Please like my answer.
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