Homework 3

Draft (updated March 1, 2009)

Using the March, 2000 CPS we are all familiar with.

1) We are going to re-analyze the influence of vietnam veteran status on income (sort of a return to HW1, but this time with better tools). Generate a new variable, age_sq=age^2 (i.e. age squared). Use aweights to get the correct unbiased parameters. The aweights should not affect the number of observations reported.

Fill in the following Table with the relevant regression output.

Use the following style for filling in the table:

regression coefficient

(standard error)

[T-statistic with Asterisks indicating statistical significance, if appropriate- see note below table]

So, a coefficient of 3.2 with a std error of 1.5 and a resulting T-statistic of 2.1, yielding a two-tailed P of just under 0.05 would look like this:

-3.2

(1.5)

[2.1*]

All models are Ordinary Least Square regression models (ie Stata regress) predicting incwage for adults age 25-64. For the Vietnam veteran dummy variable, it might be easiest if you created this by hand (=1 when the subject is a Vietnam veteran, =0 otherwise). For your own control variables, know whether they are continuous (like yrsed) or categorical variables (like race) and treat them accordingly.

	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6
vietnam veteran	dummy var for vietnam veteran status	dummy var for vietnam veteran status	dummy var for vietnam veteran status	dummy var for vietnam veteran status	dummy var for vietnam veteran status	dummy var for vietnam veteran status
sex (specify which gender you are comparing to which)		sex	sex	sex	sex	sex
age			age	age	age	age
age squared				age squared	age squared	age squared
years of education (yrsed)					years of education	years of education
Your control variable 1						1 or 2 other variables that you think are appropriate controls (explain why)
Your control variable 2
Constant
Unweighted N
Adjusted R-square

* P< .05

** P< .01

*** P<.001, two tailed tests

2) Questions:

a) Was there an advantage in the 1999 labor market to being a vietnam veteran? How sure are we that Vietnam veteran status made a difference in individual income in 1999? Justify your answer by reference to the filled-out table above.

b) Which are the control variables that seem to make the most difference to the income contrast between Vietnam veterans and others?

c) Which model fits the best by the adjusted R-square?

d) How do you interpret the constant in Model 1, and how do you interpret the constant term in the subsequent models? Why is the meaning of the constant more relevant in Models 1 and 2 than in models 3-6 (in other words, why does the constant term correspond to the real income of a relevant subset in models 1 and 2, but not in models 3-6)?

e) Across these 6 models, which coefficient has the largest T-score in absolute value (ignore the constant term)? How would you interpret the magnitude of this T-statistic?

f) Why is the age coefficient insignificant in Model 3, but significant in Model 4?

g) How do you interpret the coefficient for Vietnam veteran status in Model 1, and in Model 5?

h) How do you interpret the coefficient for years of education in Model 5? Compare the Vietnam veteran coefficient in models 4 and 5. What does the difference tell you about the educational distribution of Vietnam veterans compared to non Vietnam veterans?

i) Explain your choice of one or two additional control variables for Model 6. Explain the coefficients for these variables, and explain their effect (if any) on the coefficient for Vietnam veteran status.

j) Why do models 2 and 3 have adjusted R-square that is so similar?