The following model allows the return to education to depend upon the total amount o both parents' education, called pareduc: log(wage) = Bo+ Bi educ + B2 educ pareduc + B3 exper + B3 tenure + u a) Show that in decimal form, the return to another year of education in this model i i. A log(wage) / Aeduc= ß1+ B2 pareduc for Q. 3
The following model allows the return to education to depend upon the total amount o both parents' education, called pareduc: log(wage) = Bo+ Bi educ + B2 educ pareduc + B3 exper + B3 tenure + u a) Show that in decimal form, the return to another year of education in this model i i. A log(wage) / Aeduc= ß1+ B2 pareduc for Q. 3
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![The following model allows the return to education to depend upon the total amount of
both parents' education, called pareduc:
log(wage) = Bo + B1 educ + B2 educ pareduc + B3 exper + B3 tenure + u
a) Show that in decimal form, the return to another year of education in this model is
i. A log(wage) / Aeduc= B1+ B2 pareduc
b. What sign do you expect for B2 ?
b) Using the data in WAGE 2, the estimated equation is
log (wage)
= 5.65 + .047 educ + .00078 educ-pareduc +
(.13) (.010)
(.00021)
.019 exper + .010 tenure
(.004)
(.003)
n = 722, R² = .169.
i.
b. Interpret the coefficient on the interaction term. It might help to choose
two specific
c. values for pareduc- for example, pareduc = 50 if both parents have a
college education, or pareduc = 30 if both parents have a high school
education – and compare the estimated return to educ.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe66a6176-160f-4678-b60f-ecc48699644d%2Fe5667f37-2f64-4345-b681-86bf6b0411fd%2Fo9yjxon_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The following model allows the return to education to depend upon the total amount of
both parents' education, called pareduc:
log(wage) = Bo + B1 educ + B2 educ pareduc + B3 exper + B3 tenure + u
a) Show that in decimal form, the return to another year of education in this model is
i. A log(wage) / Aeduc= B1+ B2 pareduc
b. What sign do you expect for B2 ?
b) Using the data in WAGE 2, the estimated equation is
log (wage)
= 5.65 + .047 educ + .00078 educ-pareduc +
(.13) (.010)
(.00021)
.019 exper + .010 tenure
(.004)
(.003)
n = 722, R² = .169.
i.
b. Interpret the coefficient on the interaction term. It might help to choose
two specific
c. values for pareduc- for example, pareduc = 50 if both parents have a
college education, or pareduc = 30 if both parents have a high school
education – and compare the estimated return to educ.
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