Econometrics 206-3

Exam III: 11.50 AM -1.20 PM, 24 April 2017

In answering these below, paste the Stata output only when it is asked. When
pasting output, use the copy as picture option. When testing a hypothesis, be sure
to mention the distribution of the test statistic, its degrees of freedom, the level of
significance and the associated critical value. DO NOT USE THE STATA test
COMMAND.

It would be easiest if you inserted your answer between the questions below and
returned this document. Rename the document as `your name.docx’ and upload it
on LMS.

You have to do this exam by yourself. You are allowed to consult the textbook and
your notes. You are NOT allowed to consult anybody whether by speaking, by text
messages or email or any other means. Violations will attract penalties as per
Ashoka policy.

1. (a) Regress log of wages on a constant and the female dummy. Paste output
here.

Source | SS df MS Number of obs = 1,000

-------------+---------------------------------- F(1, 998) = 114.01
Model | 90.8307098 1 90.8307098 Prob > F = 0.0000
Residual | 795.116327 998 .796709746 R-squared = 0.1025
-------------+---------------------------------- Adj R-squared = 0.1016
Total | 885.947037 999 .88683387 Root MSE = .89259

------------------------------------------------------------------------------
lwage | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
female | -.6905735 .0646761 -10.68 0.000 -.8174902 -.5636568
_cons | 4.08833 .0327238 124.93 0.000 4.024115 4.152545
------------------------------------------------------------------------------

(b) Interpret the coefficient on the female dummy.

The coefficient will be negative in the case of female dummy and it has value -.6905.
This indicates that in the case of a person being female, the person will earn
.6905*100=69.05% less than their male counterparts on average

(c) Test the null hypothesis that the coefficient on female dummy is -0.5 against
the alternative that the coefficient on female dummy is less than -0.5. Show your
workings.

Hnull: Coeffecient female= -0.5

The default 5% critical value for the above regression is c = -1.65. (df = 998)

The t statistic obtained on the coefficient of female = (-0.6906 + 0.5)/0.065 = -

2.9323, which is statistically very significant.

[5+5+10]

2. (a) Regress log of wages on a constant, the female dummy, age of the
individual and the square of age. Paste your output here.

Source | SS df MS Number of obs = 1,000

-------------+---------------------------------- F(3, 996) = 63.03
Model | 141.361825 3 47.1206082 Prob > F = 0.0000
Residual | 744.585212 996 .747575514 R-squared = 0.1596
-------------+---------------------------------- Adj R-squared = 0.1570
Total | 885.947037 999 .88683387 Root MSE = .86462

------------------------------------------------------------------------------
lwage | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
female | -.692959 .0626515 -11.06 0.000 -.815903 -.570015
age | .079388 .0117978 6.73 0.000 .0562365 .1025394
y | -.0008853 .0001545 -5.73 0.000 -.0011885 -.0005822
_cons | 2.527584 .2101014 12.03 0.000 2.115292 2.939876
------------------------------------------------------------------------------

(b) Controlling for age and the square of age does not seem to substantially
change the coefficient of the female dummy. Why is that so?

Age or age^2 do not substantially change the coefficient of the female dummy as
they aren’t highly correlated. Being female has a negative effect on wage and is
found to be highly statistically significant.

[5+5]

3. (a) Regress log of wages on a constant, the female dummy, age of the
individual the square of age and the social group dummies for scheduled caste,
for scheduled tribe and for other backward caste. Note the omitted category is
the general castes (or forward castes). Paste your output here.
 Source | SS df MS Number of obs = 1,000
-------------+---------------------------------- F(6, 993) = 36.14
Model | 158.795189 6 26.4658649 Prob > F = 0.0000
Residual | 727.151847 993 .732277792 R-squared = 0.1792
-------------+---------------------------------- Adj R-squared = 0.1743
Total | 885.947037 999 .88683387 Root MSE = .85573

------------------------------------------------------------------------------
lwage | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
female | -.6808852 .0622516 -10.94 0.000 -.803045 -.5587253
age | .076767 .0116935 6.56 0.000 .0538201 .0997138
y | -.0008541 .0001531 -5.58 0.000 -.0011545 -.0005538
scd | -.3656677 .076494 -4.78 0.000 -.5157761 -.2155594
std | -.1625248 .0896568 -1.81 0.070 -.3384634 .0134138
obc | -.2425269 .073789 -3.29 0.001 -.3873272 -.0977267
_cons | 2.783519 .2155573 12.91 0.000 2.360519 3.206519
------------------------------------------------------------------------------

(b) Test the null hypothesis that none of the social group dummmies matter, i.e.,
controlling for sex, age and square of age, the average of log wages is the same
for all categories: scheduled castes, scheduled tribes, other backward castes and
the general (forward) castes. Do NOT use the Stata test command.

H0 : B4 = B5 = B6 = 0, H1 : H0 is NOT true

For the unrestricted model : R2(ur) = 0.1792

For the restricted model : R2(r) = 0.1596

q=3

F = ((R2(ur) - R2(r))/q)/(1-R2(ur))/df(ur)

F = 0.00653/0.00083 = 7.867

critical value (c) = 2.803

We see, F > c, hence we can reject the null hypothesis at this level of significance.
Or, it is statistically significant.

(c) Test the null hypothesis that relative to the general (forward) castes,
scheduled castes and other backward castes suffer the same extent of
discrimination. If this requires new regressions, paste the output in your
answer.
[5+15+15]

4. (a) Regress log of wages on a constant, the female dummy, age of the
individual the square of age, the social group dummies for scheduled caste, for
scheduled tribe and for other backward caste, and the education dummies for
illiterate, literate, primary, secondary, and higher secondary. Paste the output
here.

Source | SS df MS Number of obs = 1,000

-------------+---------------------------------- F(11, 988) = 58.25
Model | 348.513806 11 31.6830732 Prob > F = 0.0000
Residual | 537.433231 988 .54396076 R-squared = 0.3934
-------------+---------------------------------- Adj R-squared = 0.3866
Total | 885.947037 999 .88683387 Root MSE = .73754

----------------------------------------------------------------------------------
lwage | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-----------------+----------------------------------------------------------------
female | -.4798672 .056069 -8.56 0.000 -.5898951 -.3698392
age | .0575825 .0101922 5.65 0.000 .0375817 .0775832
y | -.0005525 .0001333 -4.15 0.000 -.0008141 -.000291
scd | -.1330371 .0671176 -1.98 0.048 -.2647465 -.0013278
std | -.0407981 .0776793 -0.53 0.600 -.1932335 .1116372
obc | -.1392578 .0638728 -2.18 0.029 -.2645997 -.013916
illiterate | -1.528027 .0950408 -16.08 0.000 -1.714532 -1.341522
literate | -1.217191 .1094939 -11.12 0.000 -1.432059 -1.002324
primary | -1.139141 .1052712 -10.82 0.000 -1.345722 -.9325605
secondary | -.8414607 .0984195 -8.55 0.000 -1.034596 -.6483255
higher_secondary | -.3257726 .1343302 -2.43 0.015 -.589378 -.0621673
_cons | 3.965373 .2109827 18.79 0.000 3.551347 4.379398
----------------------------------------------------------------------------------

(b) Compare the above regression with the regression in question 3 (without the
education dummies). Does the inclusion of education dummies alter the
discrimination against women, scheduled castes, scheduled tribes and other
backward castes? Why?

The inclusion of education dummies will alter the discrimination against women,
scheduled castes, scheduled tribes as well as other backward castes. The
education dummies are highly statistically significant. An increase in level of
education indicates a positive effect on the wage and reduces the discrimination
against the groups listed above.
[5+15]

5. (a) To the explanatory variables in the regression in Qn 4(a), add land owned
(LandO) and land possessed (LandP) and re-run the regression. DO NOT paste
the output.
(b) Is either of the land variables individually significant at the 5 or 10% level?

No the land variables are not significant at the 5 or 10% level in this case We
realize this by observing the t-values for both terms and it is noted that these
values are less than the value of the critical point c at 5 and 10% significance
level.

(c) Now drop land owned (LandO) and re-run the regression. Is the included
land variable significant at the 5 or 10% level?

After dropping landO variable, the landP variable becomes statistically

significant. It’s t-value exceeds the critical point c at a significance level of 10%.
It is not statistically significant at a 5% level however.

(d) Explain the pattern of results observed in (b) and (c).

This pattern is explained by the fact that there is a high correlation between land
possessed and landowned. When both terms are used in the regression, they are
not individually statistically significant. However, when land owned is dropped,
the statistical significance of land possessed increases as its coefficient increases.

[4+4+7]