HTV.dta - Educ Variable - Economics Assessment Answer

Assessment Task:

The assignment is marked out of 30 3 points will be deducted for every day late. Please submit your assignment in a single file (Word or PDF) and separately upload your STATA do-file and log-file. POINTS WILL BE DEDUCTED IF YOU DO NOT UPLOAD YOUR DO-FILE AND LOG-FILE. 

Use the data in HTV.dta to answer this question. The dataset contains information on wages, education, parents’ education, and several other variables for 1230 working men in 1991. 

(1) What is the range of the Educ variable in the sample? What percentage of men completed twelfth grade but no higher grade? Do the men or their parents have, on average, higher levels of education? 

(2) Estimate the equation where educational attainment depends on parents’ education and a measure of cognitive ability. educ = β +β methodic + β fatheduc + β abil + β abil + e by OLS and report the results in the usual form. How much sample variation in Educ is explained by the model? Interpret the coefficient on motheduc. 

(3) Test the null hypothesis that Educ is linearly related to bail against the alternative that the relationship is quadratic. 

(4) Using the model estimates, find the value of ability where education is minimized. 

(Requires calculus). Note that ability is measured so that negative values are permissible. You might also verify that the second derivative is positive so that you do indeed have a minimum.

(5) Argue that only a small fraction of men in the sample have “ability” less than the 

value calculated in part (4). Why is this important? 

(6) Using the equation in part (2), test H: β = β against a two-sided alternative. What is the p-value of the test? 

(7) Add the two college tuition variables to the regression from part (2) and determine whether they are jointly statistically significant. 

(8) What is the correlation between tuit17 and tuit18? Explain why using the average of the tuition over the two years might be preferred to adding each separately. What happens when you do use the average? 

(9) Do the findings for the average tuition variable in part (8) make sense when interpreted casually? What might be going on? 

(10) Use the estimates from part (2) to graph the relationship between the predicted education and abil. Set motheduc and fatheduc at their average values in the sample.

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