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

lwages 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 coefficient of the female dummy shows that considering no other factors,
female daily wage rate is 85.5% less than male daily wage rate.

(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.

Let the coefficient on female dummy be β1^

Ho: β1^ = -0.5
 H1: β1^ < -0.5

Tstatistic = (β1^ + 0.5)/ se (β1^) = -0.36/ 0.06 = -6

we reject the null hypothesis in favour of the alternative one.

[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) = 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

lwages 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?

Controlling for age and the square age does not seem to substantially change the
coefficient because there is hardly any collinearity between age and the dummy
variable female. Also, age and agesq do not have a large effect on wage rate and
therefore, including them in the regression does not substantially change the
coefficient of the female dummy.

[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) = 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

lwages 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
(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.

Fstatistic = (0.25 – 0.22) / (1 – 0.25) * (992/ 3) = 13.23, which is greater than the 5%
critical value for numerator df = 3, and large denominator df = 2.60. Thus, we reject
the null hypothesis which is that none of the social group dummies matter i.e.
controlling for sex, age and square of age, the average of log wages is not the same
for all categories.

(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]
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

lwage 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 -.8222935 .1302139 -6.31 0.000 -1.077819 -.5667675
std -.2481139 .0887235 -2.80 0.005 -.4222209 -.0740068
new .3809426 .0708538 5.38 0.000 .2419022 .519983
_cons 3.085829 .1928521 16.00 0.000 2.707385 3.464274

It becomes evident that the variable is very significant i.e. the null hypothesis can be
rejected from the tstatistic of α(which is coefficient on scd – coeffecient on obc),
Thus, we fail to conclude that scheduled castes and other backward castes suffer the
same extent of discrimination.

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

lwages 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]

The inclusion of education dummies does alter the discrimination against women,
scheduled castes, scheduled tribes and other backward castes. The decrease is by a
large percentage for all of categories. The discrimination has reduced in all the cases
as education dummies has been accounted for in this regression. Therefore we can
infer that education has a major role to play in determining daily wage rate. Those
who have received education are expected to receive a higher daily wage than those
who haven’t, irrespective of gender and caste.
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, neither of the two are individually significant at the 5 or 10% level. As the t
statistic is 1.26 for Land Owned and -0.68 for land possessed and this is lower than
the 5% which is 1.96 and 10% which is 1.64. Hence, both are individually
insignificant.

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

Yes, the t statistic is 2.2, hence it is significant at both 5% and 10% level.

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

Since land possessed already includes land owned, the latter is a redundant variable.
Therefore, including land owned in the regression renders both variables individually
insignificant. However, if we one remove land owned the significance of land
possessed increases since it is the sole measure of land possession and there is no
double counting.

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