To Investigate Whether or Not There Is Discrimination Against a Sub-Group

question 13

Essay

To investigate whether or not there is discrimination against a sub-group of individuals, you regress the log of earnings on determining variables, such as education, work experience, etc., and a binary variable which takes on the value of one for individuals in that sub-group and is zero otherwise. You consider two possible specifications. First you run two separate regressions, one for the observations that include the sub-group and one for the others. Second, you run a single regression, but allow for a binary variable to appear in the regression. Your professor suggests that the second equation is better for the task at hand, as long as you allow for a shift in both the intercept and the slopes. Explain her reasoning.

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Definitions:

Seasonal Index

A factor used in time series analysis that adjusts for the seasonality of data, reflecting typical fluctuations that occur at specific times of the year.

Deseasonalized

The process of removing seasonal effects from a time series in order to identify underlying trends.

Linear Model

A statistical model that assumes a linear relationship between the input variables (independent) and the single output variable (dependent).

Trend

A general direction in which something is developing or changing, often identified through the analysis of data over time.