Consider the following model: where lwage is the natural logarithm of wage and f
ID: 1154755 • Letter: C
Question
Consider the following model: where lwage is the natural logarithm of wage and female is a dummy variable (1 if person is female, 0 if male). Wage is hourly wage in USS. There are only males and females in this dataset. (a) Generate the variable lwage, which is the natural logarithm of wage. (b) Estimate the model above. (c) Interpret the female coefficient. (d) Generate a male dummy, which is 1 if the person is male and 0 if the person is female. (e) Regress lwage on male. How does the estimate of the male coefficient compare to the female coefficient in c)? (f) What happens if you want to regress lwage on male and female? Why?Explanation / Answer
(a) This is a log lin model. To generate the variable lwage we need information on the data set. The data set is missing.
(b) For this the data set is needed and also a tool to run the log lin model.
(c) The female dummy shows the impact of a person being a female on the log of the wage. The impact of being female on the wage rate.
(d) This will simply be the inverse of the female dummy. It will then show the impact of the a person being male on the log of the wages. This can be generated with the help of a tool.
(e) We need a data set and a tool for this.
(f) In this case we will have to create a third category called others and then create 2 dummies ignoring the third category. Taking both female and male, will mean falling into a dummy variable trap.