Question

In: Economics

Consider the following two models relates education to wage: log(wage) = β0 + β1educ + u...

Consider the following two models relates education to wage:

log(wage) = β0 + β1educ + u

log(wage) = β0 + β1educ + β2sibs + e

where wage denotes monthly wage; educ is the education level measured by

year; and sibs is the number of siblings. Let βe1 denotes the estimator of β1

from the simple regression, and βb1 denotes the estimator from the multiple

regression.

(a) Suppose educ and sibs are positively correlated in the sample, and sibs

has negative effects on log(wage), would you expect βe1 and βb1 to be very

different? If yes, which one will be larger? Explain your answer in detail.

(b) Suppose educ and sibs are positively correlated in the sample, and sibs has

no effects on log(wage), would you expect βe1 and βb1 to be very different?

If yes, which one will be larger? Explain your answer in detail.

(c) In the same circumstance in part (b), would you expect se(βe1) and se(βb1)

to be very different? If yes, which one will be larger? Explain your answer

in detail.

Requires no charts or data to answer, just explanations, thank you!

Expert Solution

Rahul Sunny answered 2 years ago

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