EDUCATIONAL ATTAINMENT AND EARNINGS FUNCTIONS

This project will investigate elements of the relationship between earnings and
education. The data comes from the National Longitudinal Survey of Youth 1979,
from the US.

The variables you have are:

FEMALE = Sex of respondent (0 if male, 1 if female)

MALE = Sex of respondent (1 if male, 0 if female)
AGE = Age in 2002
S = Years of Schooling (highest grade completed as of 2002)
ASVABC = Composite measure of ability
SM = Years of Schooling of respondent’s mother
SF = Years of Schooling of respondent’s father

When answering questions be sure to write down completely all regression equations
estimated. Be clear to state any assumptions that you have made. Make sure that all
regressions are interpreted clearly. For questions 1 – 3 make sure that you focus on
the most important variables – justify your choices.

1) Graphically display your data, using whichever graphs you think are
appropriate. What information do they provide about the data?
2) Generate sample statistics for the data, what information do these give about
the data?
3) Generate correlation coefficients for the data. Explain what these mean.
4) Use bivariate regression to determine whether educational attainment depends
on intellectual ability?
5) It is hypothesised by an economist that father’s education has no impact on
educational attainment, having controlled for individual ability. Use bivariate
regression to test this hypothesis.
6) Another economist suggests that once we have controlled for ability, neither
mother’s nor father’s education influences educational attainment. Test for this
hypothesis.
7) If you examine the correlation coefficient between mother’s educational
attainment and educational attainment, you see a clear positive correlation.
Why might this result be spurious? Why do we need to use regression analysis
to test for the impact of mother’s education on educational attainment?
8) Use 1, 2 and 3 to suggest a theory for how educational attainment is related to
ability. What is the shape of the functional form?
9) Think about your answer from question 8, use this to develop an empirical
model of educational attainment from the data. Think about which variables
you wish to use and the functional form. Estimate this model interpreting your
results clearly and testing any relevant hypotheses.
10) State clearly any problems that may be associated with your analysis, how
might you improve on the results you have obtained?