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

Exercise 5

Use the data in FRINGE.RAW for this exercise.

(i) For what percentage of the workers in the sample is pension equal to zero? What is the range of pension for workers with nonzero pension benefits? Why is a Tobit model appropriate for modeling pension?

(ii) Estimate a Tobit model explaining pension in terms of exper, age, tenure, educ, depends, married, white, and male. Do whites and males have statistically significant higher expected pension benefits?

(iii) Use the results from part (ii) to estimate the difference in expected pension benefits for a white male and a nonwhite female, both of whom are 35 years old, are single with no dependents, have 16 years of education, and have 10 years of experience.

(iv) Add union to the Tobit model and comment on its significance.

(v) Apply the Tobit model from part (iv) but with peratio, the pension-earnings ratio, as the dependent variable. (Notice that this is a fraction between zero and one, but, though it often takes on the value zero, it never gets close to being unity. Thus, a Tobit model is fine as an approximation.) Does gender or race have an effect on the pension-earnings ratio?

Step 1 of 9

(i)

There are 616 observations in the dataset FRINGE. Out of this set 172 have pensions equal to zero. That means 27.92% of workers have zero pension

For the workers with non-zero pensions, the minimum pension is $7.28 and maximum pension is $2880.27

Given that there is 27.92% of workers have zero pension and that the range of pension benefits across the non-zero pension workers is large, it would be appropriate to to use Tobit model for modeling