Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 16

Use the data in WAGE2.RAW for this exercise.

(i) Estimate the model

and report the results in the usual form. Holding other factors fixed, what is the approximate difference in monthly salary between blacks and nonblacks? Is this difference statistically significant?

(ii) Add the variables exper2 and tenure2 to the equation and show that they are jointly insignificant at even the 20% level.

(iii) Extend the original model to allow the return to education to depend on race and test whether the return to education does depend on race.

(iv) Again, start with the original model, but now allow wages to differ across four groups of people: married and black, married and nonblack, single and black, and single and nonblack. What is the estimated wage differential between married blacks and married nonblacks?

Step 1 of 6

(i)

Estimate the model given by the following equation:

The result is as follows:

The usual form of the model is as follows:

The coefficient ofdetermines the difference between the monthly salary of blacks and non-blacks, which is the monthly salary of blacks is 18.835% lower than that of non-blacks.

The p-value of the coefficient ofis 0.0000 which is less than the critical p-value of 0.05 at 5% level of significance indicating that the difference in the monthly salary between blacks and non-blacks is statistically significant at 5% level of significance.