UNIVERSITY OF WARWICK

DEPARTMENT OF ECONOMICS
ECONOMETRICS 1
Exercise Sheet 4
This exercise sheet is to be done prior to your actual tutorial class. The Stata DO file, which
you write as a group, should then be submitted by one of your group by e-mail to your
designated marker by Monday 10am of Week 6. You MUST ensure you take the output
generated from your Stata programme to your tutorial classes as this output will form the basis
of the discussions with your tutor in your class.
Again we are looking at the data file eaef.dta, and we will be adding to the Stata DO file that we
created for Exercise Sheet 1 and then extended in Exercise Sheet 2.

1. Run a regression of

ln(earningsi ) 1schooli 2 ln(tenure) 3 ln(tenure) 4 female i

2
(1)

(a) Interpret the coefficient on the female dummy.

(b) At present we assume that an additional year of schooling adds a constant
proportion to an individuals earnings, irrespective of whether one gets an actual
qualification. Re-estimate equation (1), including dummy variables for the each
individuals highest qualification educ1 (using the i.var option in Stata where
no qual is the default qualification).
(c) Use Stata to test the hypothesis that the coefficients on the highest qualification
dummies are jointly equal to zero. In a sentence, as a note in your Stata DO
file, what do you conclude from this test?
(d) Re-estimate the equation in (b) using high school diploma as the new default
(omitted) qualification and test the hypothesis that the coefficients on the highest
qualification dummies are jointly equal to zero. In a sentence, as a note in your
Stata DO file, compare the coefficient estimate on the degree dummy variable
in this equation to that reported in the equation estimated in (b)?
(e) In one sentence, as a note in your Stata DO file, explain why the model in (d)
has exactly the same coefficient estimates on the variables ln(tenure) and female
as those obtained in (b)?
 (f) Generalise the model in (b) by adding interaction terms between female and the
variables school , ln(tenure) and [ln(tenure)]2 , that is, estimate the model
(using the interaction option in Stata):

ln(earningsi ) 1schooli 2 ln(tenure) 3 ln(tenure) 4 female

2

8
j (qual _ ji ) 1 female school 2 female ln(tenure)
j2

3 female [ln(tenure)]2 i

(g) Using Stata commands test the hypothesis H 0 : 1 2 3 0 . In one sentence,

as a note in your Stata DO file, is there any evidence of gender pay differential
according to education and/or tenure?
(h) Estimate the model:

ln(earningsi ) 1schooli 2 ln(tenure) 3 ln(tenure) 4 female

2

8
j (qual _ ji ) 1Wi i
j2

where, W=1 if White, 0 otherwise, based on ethnic. Interpret the coefficients of

this model and test the hypothesis of no ethnic discrimination.
(i) Estimate the model:
ln(earningsi ) 1 female 2W 3 female W i

In a sentence on each, as a note in your Stata DO file, interpret the coefficients

, 1 , 2 , 3 and reconcile these coefficient estimates with the results reported in
Exercise Sheet 1 (question 10).
NOTE:
Before you e-mail your Stata DO file to your designated marker:
(i) Check the file runs all the way through from start to end without intervention
from the marker.
(ii) Annotate your Stata DO file with the appropriate question number to which
your answer relates to help the marker understand what part of the DO file is
answering which question.
(iii) Ensure that your Stata DO file only contains the commands necessary to
answer the questions from the exercise sheet.
(iv) Make sure, where requested on the exercise sheet, you have included answers
to specific questions as a note in the Stata DO file.

All exercise sheets will be marked out of 3 points. Failure to follow the instructions noted
above might involve you losing marks on a particular exercise sheet.