Question

1. (9 pts) Consider the following economic model describing workers' earnings: In(wage) = Bo + Beduc + Bztenure + Bzblack + Batenure? + Bseduc. black + Botenure black With all the variables described as follows: In(wage) = natural log of monthly earnings; educ = years of education; tenure = years with current employer; black = 1 if black and 0 if not; tenure? = tenure*tenure educ.black is an interaction variable equal to educ*black; tenure,black is an interaction variable equal to tenure *black. From the model above, answer the following questions: a. Determine what the return to each additional year of education: i) for black workers, and ii) for non- black workers. (2pts) b. Provide an interpretation for the coefficient associated to the variable educ.black (pt) c. Determine what is the effect of each additional year with current employer: i) for a black worker; ii) for a non-black worker. (2pts) d. For workers with the same number of tenure years and number of years of education, determine the difference in log(wage) between black and non-black workers. (1 pt) e. If ß. > 0, then does the caming gap between black and non-black workers get larger for more educated workers or for less educated workers? (2pts) f. Provide a correct interpretation for the coefficient of the variable black. (Ipt)

Answer 1

years Answer: Summarized the information and data proovided in the question', @ An additional year of education charges wages by (100-81) percento This variable capterses the interaction effect between years of mother's education and years of education of the child on the wage earnings of the child. If mother's education increases by one year we expect it to positively affect the of education of the child and hence his wage earnings. The joint effect of mother's education and child's education on the wage earnings of the child is expected to be significant and positive because child's education Cand earnings later on depends on how educated the mother is. If the interaction variable changes by 1 unit, the wage of the child changes by (100-$5 percent. © The effect of an additional tenure year on the wages of a married wooker is (Bot86) 100 percent while its effect on the wages of a non married worker only 100- 8o) percent is

2 143 4 B6) 100 percent is the difference in log of wage earnings between married and non-married workers. Given that $670, the earning gap between mareed and non-married workers gets larger for workers with longer tenure. 4 An additional year of mothois education changes the log of wage earnings for the child by 100 82 percent. please please kindly Up vote you in advance. Thank