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In: Statistics and Probability

A researcher wishes to examine the relationship between wage earned and educational level of workers. For...

A researcher wishes to examine the relationship between wage earned and educational level of workers. For a sample of 4000 workers she has data on hourly earnings (measured in SAR), age of the worker (in years), worker’s gender, years of experience, number of years with the present employer, size of the firm in which the worker is employed, and highest educational qualification (with 4 classifications: no qualification, secondary school certificate, bachelor degree or PhD)

  1. Explain how you would set up a model to address the researcher’s key interest.
  2. Based on your model, how would you estimate the predicted impact on wages of holding a PhD compared to having a bachelor’s degree.
  3. If the researcher uses ln(wage) as the dependent variable, how would the estimated coefficients be interpreted?
  4. What general advice would you give the researcher in relation to her work – eg. what econometric issues should she be aware of in conducting this research and interpreting the results?

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