The most investigated relationships in economics

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Reference no: EM131092352

You have learned that earnings functions are one of the most investigated relationships in economics. These typically relate the logarithm of earnings to a series of explanatory variables such as education, work experience, gender, race, etc.

a) Why do you think that researchers have preferred a log-linear specification over a linear specification? In addition to the interpretation of the slope coefficients, also think about the distribution of the error term.

b) To establish age-earnings profiles, you regress ln(Earn) on Age, where Earn is weekly earnings in dollars, and Age is in years. Plotting the residuals of the regression against age for 1,744 individuals looks as shown in the figure:

Reference no: EM131092352

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