(check attached files – some formula appears to be code on webpage)
(two more files for stata will be sent to your email)
For this problem you will have to use the data set nls.asc which is available on the website
for the course. There are 935 observations on nine variables in this data set, luwe (log
weekly wage), educ (years of education), exper (years of experience), age (age in years),
fed (father’s education in years), med (mothers education in years), kww (a test score), iq
(an iq score), and white (indicator for white).
1. Estimate a linear regression model for log wages on education, experience, and expe-
rience squared. Report regression coecients and standard errors. Also report the R2
and the estimate of the standard deviation of the random error.
2. Predict the eect on average log earnings of increasing everybody’s education level by
one year.
Hint: If the regression model is
log(wage)i = (check attached files)
then the eect of increasing education level of individual i by one year is
(check attached files)
because one year additional education implies one year less work experience. The av-
erage eect is the average of this.
After you dened this, compare the task to that in lecture 5 where we consider the
partial eect in a quadratic model. This is not necessary to solve this problem, but
just a reminder to re-check the answer after you have studied lecture 5.
3. Can you obtain the above eect by running a regression with a redened set of co-
variates? How? Hint: redened means that the new covariates are functions of the
regressors in the regression model of the rst part of this assignment.
4. Assume that the error term in the regression has a normal distribution. Predict the
eect on the average level of earnings of the following policy: increase the level of
education for those who currently have education below 12 years of education to 12,
and leave the level of education for others unchanged. Hint: Use the formula for the
mean of the lognormal distribution.
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