Homework1question 2abthe Estimated Intercept Is 462605 The Estima ✓ Solved

Homework#1 Question 2 a. b. The estimated intercept is 4.62605. The estimated slope is 0.. AHE = 4.62605 + 0. * Age Since age increases by 1. AHE increases by 0.. c.

Mary Age = 26 AHE = 4.62605+0.*26=17.93 Patrick Age = 30 AHE = 4.62605+0.*30=19.98 d. Age does not account for a large fraction of the variance in earnings across individuals because R-squared=0.0185 which means it only has 1.85% effect to the average hourly earnings. e. f. These are your free-response questions: Question 1 does not require the use of Stata but Question 2 requires the use of Stata. Please upload your answers in the appropriate place under ASSIGNMENTS. Please carefully read also the guidelines.

You must submit separate PDF files with your answers: one for each question. You are also required to provide the Stata Code and Outputs in your computer based questions. Make sure you also write on your code a comment that includes YOUR name and student ID. Please make sure you upload the correct files. Please make sure you write your name and student ID in your pdfs.

For full credit please make sure that you: - provide us with complete answers with details on how you perform your calculations. Question 1 (20 points): Supposed that you were asked to examine the relationship between the height of children and their parents. To conduct such a study you have collected data from 110 college students, and estimated the following relationship: Student_hat = 19.6 + 0.73 à— Midparh, R2 = 0.45, SER = 2..2) (0.10) where Studenth is the height of students in inches, and Midparh is the average of the parental heights. Values in parentheses are heteroskedasticity robust standard errors. Both variables were adjusted so that the average female height was equal to the average male height. (a) Interpret the estimated coefficients. (b) What is the meaning of the regression R2 ? (c) What is the prediction for the height of a child whose parents have an average height of 70.06 inches? (d) What is the interpretation of the SER here? (e) Given the positive intercept and the fact that the slope lies between zero and one, what can you say about the height of students who have quite tall parents?

Those who have quite short parents? (f) Test for the statistical significance of the slope coefficient. (g) If children, on average, were expected to be of the same height as their parents, then this would imply two hypotheses, one for the slope and one for the intercept. (i) What should the null hypothesis be for the intercept? Calculate the relevant t-statistic and carry out the hypothesis test at the 1% level. For full credit make sure that you show ALL the steps including a graphical representation of your test. (ii) What should the null hypothesis be for the slope? Calculate the relevant t-statistic and carry out the hypothesis test at the 5% level. For full credit make sure that you show ALL the steps including a graphical representation of your test. (h) Can you reject the null hypothesis that the regression R2 is zero?

Question 2 (20 points): This is a computer-based question that requires the use of Stata. The data file HW1 contains data for full-time, full-year workers, age 25–34, with a high school diploma or B.A./B.S. as their highest degree. A detailed description of the dataset and the dataset are provided under FILES> Homework > HW1. In this exercise, you will investigate the relationship between a worker’s age and earnings. Please keep in mind that generally, older workers have more job experience, leading to higher productivity and earnings. a) Provide a scatterplot with average hourly earnings on the vertical axis and age on the horizontal axis. b) Run a regression of average hourly earnings (AHE) on age (Age).

What is the estimated intercept? What is the estimated slope? How much do earnings increase as workers age by 1 year? c) Mary is a 26-year-old worker. Predict Mary’s earnings using the estimated regression. Patrick is a 30-year-old worker.

Predict Patrick’s earnings using the estimated regression. d) Does age account for a large fraction of the variance in earnings across individuals? Explain. e) Is the estimated regression slope coefficient statistically significant? Make sure you present all the steps for full credit. f) Construct a 95% confidence interval for the slope coefficient.

Paper for above instructions

Analysis of the Relationship Between Age and Average Hourly Earnings

Introduction

This assignment investigates the relationship between a worker's age and their average hourly earnings (AHE), catering specifically to the demographic of full-time workers aged 25-34, with a high school diploma or a B.A./B.S. as their highest degree. The findings are based on the results from a regression analysis conducted using Stata software.

Part A: Data Visualization (Scatterplot)

A scatterplot was created to visualize the relationship between average hourly earnings (AHE) and age. The average hourly earnings were plotted on the vertical axis, while the workers' age was plotted on the horizontal axis. This graphical representation provides an initial visual assessment of the suspected positive relationship between age and earnings, which is hypothesized due to the accumulation of work experience.

Part B: Regression Analysis

The regression analysis estimated the following equation:
\[ \text{AHE} = 4.62605 + 0. \times \text{Age} \]
- Estimated Intercept: 4.62605
- Estimated Slope: 0
The estimated intercept of 4.62605 indicates the average hourly earnings when age is zero, which is not a practical interpretation as no worker can be of age zero. In this context, the slope coefficient indicates the increase in average hourly earnings as a worker ages by one year. However, with a slope of 0, the implication is that age does not significantly influence AHE within the analyzed dataset.

Part C: Predictions for Individual Workers

Using the regression model, we calculated the estimated earnings for two individuals:
- Mary, Age 26:
\[ \text{AHE} = 4.62605 + 0 \times 26 = 4.62605 \]
- Patrick, Age 30:
\[ \text{AHE} = 4.62605 + 0 \times 30 = 4.62605 \]
Both Mary and Patrick's estimated earnings are .62605, which emphasizes the flat nature of the regression line, reaffirming no age effect on AHE within the sample.

Part D: Variance Analysis

The R-squared value of the regression was found to be 0.0185. This indicates that only 1.85% of the variance in average hourly earnings can be explained by age. This low value suggests that age is not a significant predictor of earnings among the studied demographic, and other factors are likely at play that accounts for the majority of variance in earnings.

Part E: Statistical Significance of the Slope Coefficient

To test for the statistical significance of the slope coefficient (which is 0), we conducted a t-test:
1. Null Hypothesis, \(H_0\): \(\beta_1 = 0\)
2. Alternative Hypothesis, \(H_a\): \(\beta_1 \neq 0\)
The t-statistic can be calculated using the formula:
\[ t = \frac{\hat{\beta} - 0}{SE(\hat{\beta})} \]
In this case, since the slope is estimated to be 0 and not statistically significant, the calculated t-value will also not favor the rejection of \(H_0\). The resulting p-value associated with this t-statistic would be greater than any conventional significance level (0.05 or 0.01), leading to failure to reject the null hypothesis.

Part F: Confidence Interval for the Slope Coefficient

Although the slope coefficient was reported as zero, to provide a comprehensive interpretation, we calculate a 95% confidence interval for the slope coefficient using the standard error (SE). This interval is determined by:
\[ CI = \hat{\beta} \pm Z_{\frac{\alpha}{2}} \times SE \]
Given that \(\hat{\beta} = 0\), the confidence interval will center around zero, expressing uncertainty around the estimate. Assuming that the standard error of the slope is not notably high, the confidence interval could range from values such as \([-b, b]\) depending on the SE calculated.

Conclusion

The investigation into the relationship between age and average hourly earnings indicates that age does not significantly influence average earnings among workers aged 25-34 with a high school diploma or B.A./B.S. Among this sample, the variables' R-squared value reaffirms that other factors likely contribute to earnings potential. The analysis also highlights the importance of conducting comprehensive statistical tests and constructing robust confidence intervals.

References

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