Skip to content##### Labor Economics problem set

1. For a category undertaking, you got down to analyze the impact of instructional attainment on wages. You
interview a number of folks and procure the next information:
Particular person Training (years) Wage ($/hr)
A 10 5
B 12 6
C 12 eight
D 14 10
E 16 10
F 21 16
(a) Graph the info, with wages on the y-axis and training on the x-axis.
(b) Write down the econometric mannequin you'll use to estimate the consequences of an extra
12 months of training on the hourly wage.
(c) What's the interpretation of the 2 unknown parameters to be estimated? What's
the anticipated signal of the coefficient of training?
2. Recall the info from Query 1, the estimated regression equation is
wi = −four.63 + zero.97EDUCi
The usual errors are 1.66 and zero.11, respectively.
(a) What's the predicted wage of a person with a highschool diploma (i.e., 12 years
of education)?
(b) What's the predicted wage of a person with a bachelor’s diploma (i.e., 16 years of
education)?
(c) Does the mannequin precisely predict the proper wage for any particular person within the pattern with
12 or 16 years of education? Does that imply the mannequin just isn't helpful?
1
three. Allow us to take into account extra rigorously the determinants of wages. As an preliminary try to investigate
the consequences of training on wages, you estimate the univariate mannequin:
wi = α0 + α1EDUCi + εi
Nevertheless, then somebody factors out to that some persons are simply “naturally” higher employees
than others, no matter education. After giving it some thought, you hypothesize that IQ
is an efficient measure of 1’s “pure” capability. Thus, you take into account another multivariate
regression mannequin of the shape:
wi = α
zero
zero + α
zero
1EDUCi + α
zero
2
IQi + ε
zero
i
(a) What's the interpretation of α1 and α
zero
1
.
(b) If it's the case that IQ has no impact on wage (by which case the 2 variables could be
mentioned to be unbiased), how will α1 evaluate to α
zero
1
?
(c) If it's the case that IQ has a constructive impact on wage and IQ and training are uncorrelated
with one another, how will α1 evaluate to α
zero
1
?
(d) If it's the case that IQ has a constructive impact on wage and people with excessive IQ additionally
attend college longer on common, will α1 = α
zero
1
. How do you assume α1 will evaluate to α
zero
1
?
four. Consider the next declare: “Beneath all conditions, if there are omitted variables from a
regression equation which do actually have an effect on the variable the researcher is attempting to elucidate,
then ensuing estimates of the parameters are biased.

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