Earnings Functions Attempt to Predict the Log of Earnings from a Set

question 20

Essay

Earnings functions attempt to predict the log of earnings from a set of explanatory
variables, both binary and continuous.You have allowed for an interaction between two
continuous variables: education and tenure with the current employer.Your estimated
equation is of the following type: $$\widehat { \ln ( \text { Earn } ) } = \widehat { \beta _ { 0 } } + \widehat { \beta _ { 1 } } \times \text { Femme } + \widehat { \beta _ { 2 } } \times \text { Educ } + \widehat { \beta _ { 3 } } \times \text { Tenure } + \widehat { \beta _ { 4 } } \times ( \text { Educ } \times \text { Tenure } ) + \bullet$$ where Femme is a binary variable taking on the value of one for females and is zero
otherwise, Educ is the number of years of education, and tenure is continuous years of
work with the current employer.What is the effect of an additional year of education on
earnings ("returns to education")for men? For women? If you allowed for the returns to
education to differ for males and females, how would you respecify the above equation?
What is the effect of an additional year of tenure with a current employer on earnings?

---

Definitions:

Price Floor

A government- or group-imposed price control or limit on how low a price can be charged for a product, service, or commodity.

Equilibrium Price

The market price where the quantity of goods supplied equals the quantity demanded, resulting in market balance.

Quantity

Quantity refers to the amount or number of a material or immaterial item considered as a unit or in plural units.

Quantity Supplied

The total amount of a commodity that producers are willing and able to sell at a given price during a specific time period.