Econometrics PS3 Wage Data Assignment

| October 3, 2018

Please write your name on all
pages that you turn in. You may turn in your responses to the questions
hand-written or typed, as long as it is legible (if we can’t read your answer
we probably won’t give you full credit for it!). Please answer each question
completely, show your work (full credit requires a response and evidence of how
you got it) and include your output from Gretl or another statistical program.
For questions that ask for an explanation, one sentence should suffice.

Please use the data file called “PS3 Wage Data” (available
in .csv, .txt, or .gdt, depending on which program you choose to use) on
Smartsite. This file contains data on wages (w), years of schooling (ed), and
years of work experience (ex) for a random sample of 1,289 individuals, taken
from the1995
Current Population Survey by the U.S. Census Bureau. The variables in this data
set include, in order by column:
w
(wage)
fe
(female indicator variable: 1 if person i is female and 0 if male)
nw
(nonwhite indicator: 1 if nonwhite and 0
if white)
ed
(years of schooling)
ex
(years of potential experience)

Assuming that the multiple regression assumptions
MR1-MR5 hold, estimate a multiple regression model of the following form:
.png”>
1. Please estimate the
equation and report your regression results (parameter estimates, standard
errors, and t-statistics) in a table.
2. Based on this regression,
what is the marginal return to schooling? To experience?
3. Your dropout friend claims
that a year of schooling couldn’t have more than a $1.25 effect on wages. Test
this null hypothesis at the 95% confidence level. Will this be a one or
two-tailed test? Why?

Back in 1974, an economist named Jacob Mincer
proposed the following wage equation:
.png”>
The Mincer equation has since become one of the
most widely used equations in econometrics.

4. Which variables will you
need to transform to estimate this equation? Write the transformations you will
need to do to those variables.
5. Estimate the Mincer wage
equation, and report your results in table form.
6. In this specification, what
is the interpretation of b1?
Is it different than what you got in Question 1? Why or why not?
7. Suppose you think there
might be discrimination with respect to gender and race/ethnicity in the U.S.
labor market. Write a model that you can use to test whether wages are lower
for women and/or non-whites, controlling for education and experience.
8. Estimate your model and
report your results in a table.

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