question archive The following model allows the return to education to depend upon the total amount of both parents' education, called pareduc: log(wage) = Bo + B,educ + Bzeduc
The following model allows the return to education to depend upon the total amount of both parents' education, called pareduc: log(wage) = Bo + B,educ + Bzeduc
Subject:EconomicsPrice: Bought3
The following model allows the return to education to depend upon the total amount of both parents' education, called pareduc: log(wage) = Bo + B,educ + Bzeduc.pareduc + Bzexper + Batenure + u. (i) Show that, in decimal form, the return to another year of education in this model is = Alog(wage)/Aeduc = B1 + Bzpareduc. What sign do you expect for B2? Why? (ii) Using the data in WAGE2.RAW, the estimated equation is log(wage) = 5.65 +.047 educ +.00078 educ.pareduc + (.13) (.010) (.00021) .019 exper+.010 tenure 0.004) (.003) n = 722, R2 = .169. (Only 722 observations contain full information on parents' education.) Interpret the coefficient on the interaction term. It might help to choose two specific values for pareduc—for example, pareduc = 32 if both parents have a college education, or pareduc = 24 if both parents have a high school education—and to compare the estimated return to educ. (iii) When pareduc is added as a separate variable to the equation, we get: log(wage) = 4.94 +.097 educ +.033 pareduc – .0016 educ.pareduc (.38) (.027) (.017) (.0012) + .020 exper + .010 tenure 0.004) (.003) n = 722, R2 = .174. Does the estimated return to education now depend positively on parent education? Test the null hypothesis that the return to education does not depend on parent education.
