For this assignment, use the dataset eaef_as2.dta, which has 1200 observations, and is
downloadable from SyD. The data contain information on wages and characteristics of workers in
United States, in 2002. It includes a variable ‘catgov’ which indicates whether the person works
a) Build a model to estimate how much more or less workers on average earn when they work
for government as opposed to private sector, holding the other determinants of wages
constant. Interpret the findings. [80%]
b) Assess whether government is a more ‘meritocratic’ employer. Do this by expanding the
model in a) to test whether ability (asvabc) and years of schooling (s) have a larger effect on
earnings in government than in the private sector. Interpret the findings. [20%]
It may be sensible to use a do-file to avoid retyping the regression commands multiple times. If you
however prefer to work from the command line, note that by pressing ‘page up/down’-buttons you
can get the previous commands to the command line – this may be the quickest way to modify the
Points to keep in mind:
-Are you controlling all relevant variables?
-Could you improve by making transformations to variables / assume non-linearities?
-Could interactions help you improve the model?
-Are there outliers that distort your model?
-Can you rule out endogeneity of your explanatory variables?
-To tabulate 2 variables use tabulate. Example: tabulate female catgov
-To look up how a command works, use help, such as help regress.
-Are the key assumptions of OLS holding (note that some of them can’t be directly tested)?
-Study the dataset and variables and think what you can and can’t do with it.
-Do your results make sense to you? (No need for literature review or outside references!)
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