Empirical Excercise 8.2

E8.2On the text websitehttp://www.pearsonhighered.com/stock_watson/,

find a data fileCPS2015, which contains data for full-time, full-year workers,

ages 25-34, with a high school diploma or B.A./B.S. as their highest degree. A

detailed description is given inCPS2015_Description, also available on the website.

(These are the same data as inCPS96_15, used in Empirical Exercise 3.1,

but are limited to the year 2015.) In this exercise, you will investigate the relationship

between a worker's age and earnings. (Generally, older workers have

more job experience, leading to higher productivity and higher earnings.)

a.Run a regression of average hourly earnings (AHE) on age (Age), sex

(Female), and education (Bachelor). IfAgeincreases from 25 to 26, how

are earnings expected to change? IfAgeincreases from 33 to 34, how are

earnings expected to change?

b.Run a regression of the logarithm of average hourly earnings, ln(AHE),

onAge,Female, andBachelor. IfAgeincreases from 25 to 26, how are

earnings expected to change? IfAgeincreases from 33 to 34, how are

earnings expected to change?

c.Run a regression of the logarithm of average hourly earnings, ln(AHE),

on ln(Age),Female, andBachelor. IfAgeincreases from 25 to 26, how

are earnings expected to change? IfAgeincreases from 33 to 34, how are

earnings expected to change?

d.Run a regression of the logarithm of average hourly earnings, ln(AHE),

onAge,Age2,Female, andBachelor. IfAgeincreases from 25 to 26, how

are earnings expected to change? IfAgeincreases from 33 to 34, how are

earnings expected to change?

e.Do you prefer the regression in (c) to the regression in (b)? Explain.

f.Do you prefer the regression in (d) to the regression in (b)? Explain.

g.Do you prefer the regression in (d) to the regression in (c)? Explain.

h.Plot the regression relation betweenAgeand ln(AHE) from (b), (c),

and (d) for males with a high school diploma. Describe the similarities

and differences between the estimated regression functions. Would your

answer change if you plotted the regression function for females with

college degrees?

i.Run a regression of ln(AHE) onAge,Age2,Female,Bachelor, and the

interaction termFemale*Bachelor. What does the coefficient on the

interaction term measure? Alexis is a 30-year-old female with a bachelor's

degree. What does the regression predict for her value of ln(AHE)?

Jane is a 30-year-old female with a high school diploma. What does the

regression predict for her value of ln(AHE)? What is the predicted difference

between Alexis's and Jane's earnings? Bob is a 30-year-old male

with a bachelor's degree. What does the regression predict for his value

of ln(AHE)? Jim is a 30-year-old male with a high school diploma. What

does the regression predict for his value of ln(AHE)? What is the predicted

difference between Bob's and Jim's earnings?

j.Is the effect ofAgeon earnings different for men than for women? Specify

and estimate a regression that you can use to answer this question.

k.Is the effect ofAgeon earnings different for high school graduates than

for college graduates? Specify and estimate a regression that you can use

to answer this question.

L.After running all these regressions (and any others that you want