Consider the Following Earnings Function

question 20

Essay

Consider the following earnings function:
ahei= β0 + β1×DFemmei + β2×educi+...+ ui
versus the alternative specification
ahei= γ0 × DMale + γ1×DFemmei + γ2×educi+...+ ui
where ahe is average hourly earnings,DFemme is a binary variable which takes on the value of "1" if the individual is a female and is "0" otherwise,educ measures the years of education,and DMale is a binary variable which takes on the value of "1" if the individual is a male and is "0" otherwise.There may be additional explanatory variables in the equation.
a.How do the βs and γs compare? Putting it differently,having estimated the coefficients in the first equation,can you derive the coefficients in the second equation without re-estimating the regression?
b.Will the goodness of fit measures,such as the regression R2,differ between the two equations?
c.What is the reason why economists typically prefer the second specification over the first?

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Definitions:

Classical Conditioning

A method of instruction that occurs by forming associations between a stimulus present in the surroundings and a spontaneously occurring stimulus, culminating in an acquired response.

Operant Conditioning

A strategy of learning wherein the impact of a response is adjusted through the provision of incentives or the application of penalties.

Evolutionary Perspective

An approach in psychology that seeks to explain mental and psychological traits—such as memory, perception, or language—as adaptations, i.e., as the functional products of natural selection.

Species-Specific

Characteristics or behaviors that are unique to a particular species.