Question

A researcher is interested in studying the effects of out-of-wedlock childbearing on the subsequent earnings of young women. Her sample consists of unmarried women who have had no more than one successful pregnancy (i.e. one kid or one batch of twins). Her dependent variable is annual earnings while her independent variable of interest is each woman’s number of children. She plans to include measures of ethnicity, educational attainment, and local economic factors in her regression equation. There are likely to be various behavioral and socioeconomic characteristics that are difficult to measure and that might be correlated with both earnings and with the number of children that one has. Thus, the researcher is aware of the possibility that a traditional multiple regression analysis is likely to produce biased estimates. She plans to use a dummy variable for whether a woman’s first birth was a twin birth as an instrumental variable for the number of children. Do you think that the twin birth variable meets the conditions for a valid instrumental variable?

Answer 1

• The effects of out-of-wedlock childbearing on the subsequent earnings of young women.
• Her dependent variable is annual earnings while
• Her independent variable of interest is each woman’s number of children.
• Include measures of ethnicity, educational attainment, and local economic factors in the regression equation.
• Various behavioral and socioeconomic characteristics that are difficult to measure and that might be correlated with both earnings and with the number of children that one has.
• The possibility that a traditional multiple regression analysis is likely to produce biased estimates.
• Since it is clear that her dependent variable is annual earnings. the concept solely depends on the or is directly proportional to, (earning is proportional to the childbearing).
• It is for sure that, the possibility that a traditional multiple regression analysis is likely to produce biased estimates, as it is not absolute that, a woman will give birth to only a single child. she may give birth to twins, triplets, quadruplets or other chances are also there.
• As the instrumental variables estimator provides a way to nonetheless obtain consistent parameter estimates. (Instrumental variables (IV) estimates of the effect of fertility on female labor supply have only been able to identify the causal effect of second and higher-parity children. )
• By going through all the above mentioned conditions or probabilities, we can come to a conclusion that, the twin birth variable does not meet the conditions for a valid instrumental variable.