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For Empirical Methods of Economic - Coursework Example

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Econometrics Report Q a. I) Linear economic model for Wage as a function: A Linear econometric model for wage as a function of education and age would be as follows: Wt = f (At, Ey) (1) In this model, Wt will denote the wage a worker is going to be paid in a particular month, At will denote the age of the worker in that year or month, and Ey will denote the number of years of education a worker has completed…
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Download file to see previous pages Figure (1) Ignoring the age variable will result in direct relationship of number of years of education completed with the amount of wage earned in a month. Therefore, the direct relationship is shown as follows: Figure (2) ii) Referring to equation (1) specifying a linear function of wage, with respect to age and education, if Ey is kept constant, i.e. number of years of education remain same, then the direct relationship of wage (Wt) and age (At) will be determined. The specific organizational principle will be applied here, i.e. the experienced workers will be enjoying more wages than those who have lesser experience, and the variable for counting the experience is the age of the workers. The more the age, the more will be experience of the workers, and hence they will enjoy larger amount in terms of their monthly wage. Keeping the education years (Ey) constant, and allowing the wages to change at a different rate, with respect to change in the age of the workers, the graph would still show a direct relationship between Wt and Ay, as follows: Figure (3) As shown above, the education variable is kept constant, and even then the wage will increase as the worker’s age increases. ...
In this case, the figure (1) can again be considered, where the wages will increase depending upon the increase on the wage as well as the age. The only exception in this section and the previous one is the dependability of age of the worker on his age, whereas both were independent in the former approach, but the results will be the same whether the age factor is going to depend on education years or not, because the wage factor is going to change depending upon the change in age as well as education years altogether. Q (b). For the equation used in question a(i), the data is put in the EViews, and the estimates have been made about the relationship between the wage, age, and education years. The following graph will be showing a relationship of the three variables provided in the equation 1 given above. Figure (4) The figure shows that the data given in the excel sheet provides a direct relationship between the wage that is calculated on the basis of the ages and educational years of each of the workers working in the company. The blue lines highlight wages, red age, and green lines show educational years in case of first model discussed above. The wage will rise whenever the educational years, or age, or bother together will rise. Concerning the second model made in an answer to the question (a) above, the changes in wage were made as a direct function of the changes made in the age of the workers, and it was supposed that the educational experiences were either kept constant or had been ignored, and a direct function was applied on the age and its change on the wage of each of the worker. The graph given in figure (5) below will ...Download file to see next pagesRead More
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