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The dataset A2_wage_data.dta (Stata format) contains data on 526…
The dataset A2_wage_data.dta (Stata format) contains data on 526 individuals.
(a) Graph wage (average hourly earnings) against educ (years of education), and superimpose the linear regression line on
the graph. What do you observe?
(b) Run a regression of wage against educ. Interpret the coefficient on educ. Test the hypothesis that educ has no effect
on wage. What do you conclude?
(c) Now run a regression of wage against appropriate controls for educ, exper (years of potential experience), gender,
marital status, region, and industry. Interpret the coefficient on each variable. Interpret the t-statistic for each variable.
(d) The impact of educ on wage has been estimated in part (b) and in part (c). Which estimate do you think is more
accurate? Why?
(e) In the regression model in part (c), test the joint significance of the entire model. Interpret the result.
(f) In the regression model in part (c), test the joint significance of the industry variables. Interpret the result.
Submitted by Patricia D. Aug. 10, 2021 12:00 a.m.
INSTANT ANSWER
Step 1/6
(a) To graph wage against educ and superimpose the linear regression line, you can use the following Stata commands: `s̀tata scatter wage educ regress wage educ
predict wage_hat line wage_hat educ, sort `From the graph, you should observe a positive relationship between wage and education, meaning that as education
increases, so does the average hourly wage.
Step 2/6
(b) To run a regression of wage against educ, use the following Stata command: `s̀tata regress wage educ `The coefficient on educ represents the expected change
in wage for a one-unit increase in education (i.e., one additional year of education). If the coefficient is positive, it means that higher education is associated with
higher wages. To test the hypothesis that educ has no effect on wage, look at the p-value associated with the educ coefficient. If the p-value is less than your
chosen significance level (e.g., 0.05), you can reject the null hypothesis and conclude that education has a significant effect on wage.
Step 3/6
(c) To run a regression of wage against appropriate controls, use the following Stata command: `s̀tata regress wage educ exper gender marital region industry `
Interpret the coefficient on each variable as the expected change in wage for a one-unit increase in that variable, holding all other variables constant. The t-statistic
for each variable tests the hypothesis that the variable has no effect on wage. If the t-statistic is large (and the corresponding p-value is small), it suggests that the
variable has a significant effect on wage.
Step 4/6
(d) The estimate of the impact of educ on wage in part (c) is likely to be more accurate than the estimate in part (b) because it controls for other factors that may
affect wage, such as experience, gender, marital status, region, and industry. By controlling for these factors, the estimate of the effect of education on wage is less
likely to be biased by omitted variable bias.
Step 5/6
(e) To test the joint significance of the entire model in part (c), look at the F-statistic and its associated p-value. The F-statistic tests the hypothesis that all the
coefficients in the model are equal to zero. If the p-value is small (e.g., less than 0.05), you can reject the null hypothesis and conclude that the model as a whole is
significant, meaning that at least one of the variables has a significant effect on wage.
Answer
(f) To test the joint significance of the industry variables in the model in part (c), you can use the following Stata command: `s̀tata testparm
industry `This command performs an F-test of the hypothesis that all the coefficients on the industry variables are equal to zero. If the p-value
is small (e.g., less than 0.05), you can reject the null hypothesis and conclude that the industry variables as a group have a significant effect on
wage.
VIDEO ANSWER SOLVED BY VERIFIED EXPERT
Solved on Dec. 16, 2022, 2:47 a.m.
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