Econometrics 206-1

Exam III: 10.10 AM -11.40 AM, 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) = 181.25
Model 140.049853 1 140.049853 Prob > F = 0.0000
Residual 771.131872 998 .772677226 R-squared = 0.1537
Adj R-squared = 0.1529
Total 911.181724 999 .912093818 Root MSE = .87902

lw Coef. Std. Err. t P>|t| [95% Conf. Interval]

female -.8553218 .0635312 -13.46 0.000 -.9799919 -.7306516

_cons 4.12635 .0322699 127.87 0.000 4.063026 4.189675

(b) Interpret the coefficient on the female dummy.

The value of the coefficient on the female dummy is -0.855. It measures the
average difference in hourly wage between a man and a woman. The woman
earns 0.8 dollars less than the man. The average wage for a woman, therefore, is
4.13 (when female = 0, wage for a man) – 0.855 = 3.275.

(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.
Ho : 1 = -0.5
Ha : 1 < -0.5

The null hypothesis can be tested with t-statistic –

-0.855 – (-)0.5/0.064 = -5.547

At a 5% significance level,
with a degree of freedom n – k – 1 = 1000-2 = 998

The critical value is -1.645.

Since the rejection rule is tbetahatj < -c,
We find that the null can be rejected at -5.547 is less than -1.645.

Hence, the null is statistically significant.

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.

. regress lw female age agesq

Source SS df MS Number of obs = 1,000

F(3, 996) = 95.62
Model 203.744072 3 67.9146908 Prob > F = 0.0000
Residual 707.437652 996 .710278767 R-squared = 0.2236
Adj R-squared = 0.2213
Total 911.181724 999 .912093818 Root MSE = .84278

lw Coef. Std. Err. t P>|t| [95% Conf. Interval]

female -.8576719 .0609852 -14.06 0.000 -.9773461 -.7379977

age .0634126 .0103899 6.10 0.000 .0430241 .0838011
agesq -.0006079 .0001343 -4.53 0.000 -.0008714 -.0003445
_cons 2.748186 .1880344 14.62 0.000 2.379197 3.117175

(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?
[5+5]

This is because the wage differential between man and woman cannot be
accounted for by factors such as age, agesq. It because of factors associated with
gender which we have not accounted for in the regression. Therefore, there is
not much change between the two coefficients as the effect of the other variables
is not that significant.

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) = 56.37
Model 231.515509 6 38.5859182 Prob > F = 0.0000
Residual 679.666215 993 .684457417 R-squared = 0.2541
Adj R-squared = 0.2496
Total 911.181724 999 .912093818 Root MSE = .82732

lw Coef. Std. Err. t P>|t| [95% Conf. Interval]

female -.807476 .0605312 -13.34 0.000 -.9262597 -.6886923

age .0605878 .0102103 5.93 0.000 .0405516 .0806241
agesq -.0005791 .0001319 -4.39 0.000 -.0008379 -.0003202
scd -.4413509 .0755029 -5.85 0.000 -.5895144 -.2931873
std -.2481139 .0887235 -2.80 0.005 -.4222209 -.0740068
obc -.3809426 .0708538 -5.38 0.000 -.519983 -.2419022
_cons 3.085829 .1928521 16.00 0.000 2.707385 3.464274

(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.

Ho :  3 =  4 =  5

Degree of freedom (restricted) = 1000 – 4 = 996

Degree of freedom (unrestricted) = 1000 – 7 = 993

q=3

F = 0.2541 – 0.2236/3//1-0.2542 /993 =

(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) = 85.16
Model 443.473774 11 40.3157976 Prob > F = 0.0000
Residual 467.707951 988 .473388614 R-squared = 0.4867
Adj R-squared = 0.4810
Total 911.181724 999 .912093818 Root MSE = .68803

lw Coef. Std. Err. t P>|t| [95% Conf. Interval]

female -.6287476 .0524421 -11.99 0.000 -.7316584 -.5258369

age .0434705 .0086153 5.05 0.000 .026564 .0603769
agesq -.0003424 .0001108 -3.09 0.002 -.0005599 -.000125
scd -.2332977 .0636376 -3.67 0.000 -.3581781 -.1084173
std -.0939275 .0744076 -1.26 0.207 -.2399427 .0520876
obc -.2183765 .0596753 -3.66 0.000 -.3354813 -.1012716
illiterate -1.579581 .082054 -19.25 0.000 -1.740601 -1.418561
literate -1.302972 .0962819 -13.53 0.000 -1.491913 -1.114032
primary -1.303007 .0929865 -14.01 0.000 -1.485481 -1.120534
secondary -.9743013 .0859749 -11.33 0.000 -1.143016 -.8055869
higher_secondary -.4865914 .1186415 -4.10 0.000 -.7194097 -.253773
_cons 4.334187 .1815994 23.87 0.000 3.977822 4.690552
(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?
[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?

For land owned,

Ho : 12 = 0
Ha : 12 does not equal zero.

The null hypothesis can be tested with t-statistic –

0.0000967/0.0000767 = 1.261

At a 5% significance level,
with a degree of freedom n – k – 1 = 912 - 14 = 898

The critical value is 1.96

Since the rejection rule is tbetahatj > c,
We find that the null CANNOT be rejected at 1.261 is less than 1.96

Hence, the null is NOT statistically significant at 5%.

At a 10% significance level,

The critical value is 1.65
We find that the null CANNOT be rejected at 1.261 is less than 1.65

Hence, the null is NOT statistically significant at 10%.

For land possessed,
Ho : 13 = 0
Ha : 13 does not equal zero.

The null hypothesis can be tested with t-statistic –

-0.0000526/0.0000769 = -0.684

At a 5% significance level,
with a degree of freedom n – k – 1 = 912 - 14 = 898

The critical value is -1.96

Since the rejection rule is tbetahatj < -c,
We find that the null CANNOT be rejected at -0.864 is NOT less than -1.96

Hence, the null is NOT statistically significant at 5%.

At a 10% significance level,

The critical value is -1.65
We find that the null CANNOT be rejected at -0.684 is NOT less than -1.65

Hence, the null is NOT statistically significant at 10%.

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

For land possessed,

Ho : 13 = 0
Ha : 13 does not equal zero.

The null hypothesis can be tested with t-statistic –

-0.000039/0.0000177 = -2.203

At a 5% significance level,
with a degree of freedom n – k – 1 = 912 - 14 = 898

The critical value is -1.96

Since the rejection rule is tbetahatj < -c,
We find that the null CAN be rejected as -02.203 is less than -1.96

Hence, the null is statistically significant at 5%.

At a 10% significance level,

The critical value is -1.65
We find that the null CAN be rejected at -2.203 is less than -1.65

Hence, the null is statistically significant at 10%.

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

There is a difference in the statistical significance in b) and c) due to high

multicollinearity between the variables landO and landP. By dropping landO we
are able to get a better understanding of the effect of landP on logwages.