Module 2: MRA Further Issues and Qualitative Information

Question 1

What is an interaction term and when do you inlcude it in a regression?

Answer 1

An interaction term is when two variables are multiplies together in a regression.
We use this to understand the partial effect of the independent variable on the dependent variable is expected to depend on another independent variable.

Question 2

How do you find the turn around point in a quadratic?

Answer 2

y=-b/2a
or
x=-B1/2B2

where B=betas

Question 3

Given the following regression, interpret tenure

wage=-1.75+0.586educ+0.058female-0.147female*educ+0.306tenure-0.0005tenure^2-0.160nonwhite

If the mean tenure is 5.1 years

Answer 3

An additional year on the job is expected to add $0.26 to hourly wage

dwage=0.306-0.01*5.1=0.26

Question 4

Given the following regression, interpret female on wage

wage= -1.75+0.058female-0.147female*educ+0.306tenure -0.0005tenure^2 -0.160nonwhite

When mean educ is 12.6 years

Answer 4

At the mean education level, females earn $1.79 less per hour than their male counterparts

dwage=0.058-0.147*12.6=-1.79

Question 5

Given the following regression, interpret education on wage.

wage= -1.75+0.058female -0.147female*educ+0.306tenure -0.0005tenure^2 -0.160nonwhite

Without knowing someones gender

Answer 5

An additional year of education is expected to add $0.44 to hourly wage

dwage=0.586-0.147=0.439

For men it’s $0.59

Question 6

Find the turn-around pt for tenure

wage= -1.75+0.586educ+0.058female -0.147female*educ+0.306tenure -0.005tenure^2 -0.16nonwhite

Answer 6

tenure = 0.306/2(0.005)=30.6

After 30.6 years at the same employer, wages begin to decline