Suppose you have two years' worth of panel data on wages and work experience of adults; however, the data set has no further information on the characteristics of the individuals in the data set. Specifically, you have cross-sectional wage and work experience data on individuals in 2006, and cross-sectional data on those same individuals in 2012. You plan to use the following fixed effects model to analyze the effects of work experience on wages: log (waget) — Во + бо ут 10, + Biezperiu + aj +ut where wage = yearly wage of individual į at time t, in dollars yr 10, =1 in the year 2010 (t = 2), and =0 otherwise (t = 1) exper = years of work experience of individual i, at time t aj = unobserved (time-invariant) effect Uit = idiosyncratic error Two other factors that can influence wage, which you have not controlled for in your model, are innate ability and health. Use the following table to indicate which term in the fixed effects model captures the effect of innate ability, which term captures the effect of health, and which term captures the effect of work experience. aj Uit B1 Work experience Health Innate ability

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Suppose you have two years' worth of panel data on wages and work experience of adults; however, the data set has no further information on the
characteristics of the individuals in the data set. Specifically, you have cross-sectional wage and work experience data on individuals in 2006, and
cross-sectional data on those same individuals in 2012. You plan to use the following fixed effects model to analyze the effects of work experience on
wages:
log (waget) %3D Во + бо уг 10, + В1 егреriи + a; + ui
where
wage; = yearly wage of individual i at time t, in dollars
yr 10, =1 in the year 2010 (t = 2), and =0 otherwise (t = 1
exper = years of work experience of individual i, at time t
ai = unobserved (time-invariant) effect
Uit = idiosyncratic error
Two other factors that can influence wage, which you have not controlled for in your model, are innate ability and health.
Use the following table to indicate which term in the fixed effects model captures the effect of innate ability, which term captures the effect of health,
and which term captures the effect of work experience.
ai
Uit
B1
Work experience
Health
Innate ability
Transcribed Image Text:Suppose you have two years' worth of panel data on wages and work experience of adults; however, the data set has no further information on the characteristics of the individuals in the data set. Specifically, you have cross-sectional wage and work experience data on individuals in 2006, and cross-sectional data on those same individuals in 2012. You plan to use the following fixed effects model to analyze the effects of work experience on wages: log (waget) %3D Во + бо уг 10, + В1 егреriи + a; + ui where wage; = yearly wage of individual i at time t, in dollars yr 10, =1 in the year 2010 (t = 2), and =0 otherwise (t = 1 exper = years of work experience of individual i, at time t ai = unobserved (time-invariant) effect Uit = idiosyncratic error Two other factors that can influence wage, which you have not controlled for in your model, are innate ability and health. Use the following table to indicate which term in the fixed effects model captures the effect of innate ability, which term captures the effect of health, and which term captures the effect of work experience. ai Uit B1 Work experience Health Innate ability
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