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ECN225 Week2 PS

This document provides an exercise set on econometrics modeling wage data. It includes instructions to estimate regression models to analyze gender wage gaps. A regression of wages on gender and education finds men earn $2.64/hour more than women on average, and college graduates earn $5.46/hour more than high school graduates. Additional regressions control for age, region, and jointly test for regional wage differences.

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44 views3 pages

ECN225 Week2 PS

This document provides an exercise set on econometrics modeling wage data. It includes instructions to estimate regression models to analyze gender wage gaps. A regression of wages on gender and education finds men earn $2.64/hour more than women on average, and college graduates earn $5.46/hour more than high school graduates. Additional regressions control for age, region, and jointly test for regional wage differences.

Uploaded by

mariahkhedher
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECN225 ECONOMETRICS 2

Exercise set 1 Week 2


1. Consider model Yi = β 1 Xi + ui . Estimate β 1 by minimizing the sum of
squared errors.

2. Consider model Yi = β 0 + ui .

(a) Estimate β 0 by minimizing the sum of squared errors.


(b) Show that in this case R2 = 0.

3. Suppose that a researcher, using wage data on 250 randomly selected


male workers and 280 female workers, estimates the OLS regression,

[ = 12.68 + 2.79 Male,


Wage R2 = 0.06, SER = 3.10
(0.18) (0.84)

where Wage is measured in $/hour and Male is a binary variable


that is equal to one if the person is a male and 0 if the person is a fe-
male. Define the wage gender gap as the difference in mean earnings
between men and women.

(a) What is the estimated gender gap?


(b) Is the estimated gender gap significantly different from zero?
(Compute the p-value for testing the null hypothesis that there
is no gender gap.)
(c) Construct a 95% confidence interval for the gender gap.
(d) In the sample, what is the mean wage of women? Of men?

Exercises 4–6 below refer to the Table 1 of estimated regressions, com-


puted using data for 1998 from the Current Population Survey (CPS). The
data set consists of information on 4000 full-time full-year workers. The
highest educational achievement for each worker was either a high school
diploma or a bachelor’s degree. The worker’s ages ranged from 25-34
years. The data set also contained information on the region of the coun-
try where the person lived, marital status, and number of children. For the
purposes of these exercises let
AHE = average hourly earnings (in 1998 dollars)
College = binary variable (1 if college, 0 if high school)
Female = binary variable (1 if female, 0 if male)

1
Age = age (in years)
Ntheast = binary variable (1 if Region = Northeast, 0 otherwise)
Midwest = binary variable (1 if Region = Midwest, 0 otherwise)
South = binary variable (1 if Region = South, 0 otherwise)
West = binary variable (1 if Region = West, 0 otherwise)
4. Using the regression results in column (1):

(a) Do workers with college degrees earn more, on average, than


workers with only high school degrees? How much more? Is
the earnings difference estimated from this regression statisti-
cally significant at the 5% level?
(b) Do men earn more than women on average? How much more?
Is the earnings difference estimated from this regression statis-
tically significant at the 5% level?

5. Using the regression results in column (2):

(a) Is age an important determinant of earnings? Explain.


(b) Sally is a 29-year-old female college graduate. Betsy is a 34-year-
old female college graduate. Predict Sally’s and Betsy’s earn-
ings and construct a 95% confidence interval for the expected
difference between their earnings.

6. Using the regression results in column (3):

(a) Do there appear to be important regional differences?


(b) Why is the regressor West omitted from the regression? What
would happen if it was included?
(c) Juanita is a 28-year-old female college graduate from the South.
Molly is a 28-year-old female college graduate from the West.
Jennifer is a 28-year-old female college graduate from the Mid-
west.
i. Construct a 95% confidence interval for the difference in ex-
pected earnings between Juanita and Molly.
ii. Calculate the expected difference in earnings between Juanita
and Jennifer.
iii. Explain how you would construct a 95% confidence interval
for the difference in expected earnings between Juanita and
Jennifer. (Hint: What would happen of you included West
and excluded Midwest from the regression?)

2
Table 1

Results of Regressions of Average Hourly Earnings on Gender


and Education Binary Variables and other characteristics using
1998 data from the Current Population Survey
Dependent variable: Average Hourly Earnings (AHE)

Regressor (1) (2) (3)


College (X1 ) 5.46∗∗ 5.48∗∗ 5.44∗∗
(0.21) (0.21) (0.21)
Female (X2 ) -2.64∗∗ -2.62∗∗ -2.62∗∗
(0.20) (0.20) (0.20)
Age (X3 ) 0.29∗∗ 0.29∗∗
(0.04) (0.04)
Northeast (X4 ) 0.69∗
(0.30)
Midwest (X5 ) 0.60∗
(0.28)
South (X6 ) -0.27
(0.26)
Intercept 12.69∗∗ 4.40∗∗ 3.75∗∗
(0.14) (1.05) (1.06)

Summary Statistics and Joint Tests


F-statistic for regional effects = 0 6.10
SER 6.27 6.22 6.21
R 2 0.176 0.190 0.194
R̄2 0.175 0.189 0.193
n 4000 4000 4000

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