Consider the following regression results (t ratios are in parentheses):*
where Y = wife’s annual desired hours of work, calculated as usual hours of work
per year plus weeks looking for work
X2 = after-tax real average hourly earnings of wife
X3 = husband’s previous year after-tax real annual earnings
X4 = wife’s age in years
X5 = years of schooling completed by wife
X6 = attitude variable, 1 = if respondent felt that it was all right for a woman
to work if she desired and her husband agrees, 0 = otherwise
X7 = attitude variable, 1 = if the respondent’s husband favored his wife’s
working, 0 = otherwise
X8 = number of children less than 6 years of age
X9 = number of children in age groups 6 to 13
a. Do the signs of the coefficients of the various nondummy regressors make
economic sense? Justify your answer.
b. How would you interpret the dummy variables, X6 and X7
Solved:
a.
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After-tax earnings, Age and years of schooling have a positive coefficient which
shows a positive relationship between these variables and wife’s annual desired
hours of work.
B2>0: Higher pay => higher desired work hours
B5>0: More education and good qualification=> more chance to work=> higher desired
work hours
B3<0: Husband earns more => wife has less desired work hours.
We have to consider B4 whether it is negative or positive. B4 depends on the
number of children that a wife has:
+ Case 1: If a wife has many children => Age may not have a positive
relationship with desired hours of work because the age of wife is higher + many
children => she will have more family responsibilities => the desired hours of
work may be less. So we have B4<0: Age increases => more family
responsibilities => less desired work hours
+ Case 2: If a wife has fewer than 2 children => she can still manage her time =>
have time to work.
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B6>0 (maybe): If respondent felt that it was all right for a woman to work => the sign for
wife’s desired work hours is more positive.
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B7>0: The more husband favored his wife’s working => Wife has opportunities and more
time to work
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b.
1.
B8<0 and B9<0: Higher the number of children => Wife has more family
responsibilities=> less free time for the wife => less desired work hours