ECON1203 Business and Economic Statistics – Essaylink

ECON1203 Business and Economic Statistics
TERM 3, 2020
Case Study: The Marriage Premium
Individual Work!
Final Report (35%)
At this final stage of this study, you are required to make a summary report with
recommendations for the EqRA Board to inform their annual report to their members.
The Board is very keen to understand the dynamics in the labour market and the sources of
wage discrimination. Their chief economists warn that economists have long documented an
existing marriage premium that married men on average earn more than their single coworkers.
Dr Ng is very pleased with the analysis you have provided and your answers to her initial
questions. She did a lot of readings in this literature and she came back asking you to use the
data to clarify a few outstanding claims and questions.
(A)The chief economist dismissed the findings in the literature and claims that the ‘marriage
premium’ story is really just a ‘productivity story.’ He claims that:
“Wage differentials are a result of productivity differentials: that is, marriage per se
makes workers more productive. There exists no basis to this observed discrimination
once productivity is taken into account.”
(B) Dr. Ng is puzzled by some findings in the literature. She read that one of the proposed
explanations in the standard cross-section regressions for why married men earn more
than single men is that:
“Marriage has a positive effect on workers’ productivity. The question remains
whether married men are more productive because they are married, or whether men
who do better on the ‘Marriage market’ tend to also do better on ‘Job market.’’
(C) Dr. Ng informs you that the board is also concerned with how ‘race’ impacts the
distribution of wage. She wants to report to the board on the following claims:
“Married black players earn higher wages than married non-black players.”
(D) Recall Task 1 in Milestone 2:
Marriage & Age. The marriage premium has the greatest impact on younger
players and high performers.
In addition to Dr. Ng concerns in (C), estimate a model that can also address the claims in
(D). Describe what variables/controls you have to add to the model to estimate and draw
inference about the (ceteris paribus) effect of marriage across age groups and
performance levels.
Dr. Ng wants you to address points (A)-(D) to the best of your ability given the dataset you
have and given your statistical knowledge from ECON1203.
Hints: some ideas you may pursue in your investigation
You can address all of the points in this milestone in the context of multiple linear regression.
Adding controls and variables to the regression will allow you to separate groups along their
characteristics.
As part of your reporting requirements please state your assumptions. Remember to
show all your working.
Keep in mind that this is a kind of a research exercise where you are dealing with real dataset.
There is no correct or wrong answer. BUT there is incorrect use of statistical techniques and
assumptions. Or worse, incorrect interpretation of the results and misleading the Board! The
latter is what we want to learn to avoid.
For the linear regression, please report the following:
• Interpret the coefficients.
• Define and comment whether each of the coefficients are statistically/economically
significant. Remember to state your assumptions.
• Limitations and issues with your model. The main concerns here are multicollinearity,
homoskedasticity, and omitted variable bias. You need to place these concepts in the
context of your problem and how they may affect your statistical inference.
No need to discuss these for each regression you perform. You can discuss these in the
final model in Part (D).
Representation of the OLS results
You should use the following style to report estimation results, standard errors of the
coefficient estimates in (), e.g.,