Consider the Following Two Models Involving Binary Variables as Explanatory

question 32

Essay

Consider the following two models involving binary variables as explanatory variables: = + DFemme and = DFemme + Male
where Wage is the hourly wage rate,DFemme is a binary variable that is equal to 1 if the person is a female,and 0 if the person is a male.Male = 1 - DFemme.Even though you have not learned about regression functions with two explanatory variables (or regressions without an intercept),assume that you had estimated both models,i.e. ,you obtained the estimates for the regression coefficients.
What is the predicted wage for a male in the two models? What is the predicted wage for a female in the two models? What is the relationship between the β s and the φs? Why would you prefer one model over the other?

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Definitions:

Specialization

The process by which individuals, firms, or countries concentrate on producing a narrow range of goods or services, often to increase efficiency and output.

Economic System

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Fundamental Questions

Basic questions that economies face regarding what to produce, how to produce, and for whom to produce, based on limited resources.

Unemployment

The failure to use all available economic resources to produce desired goods and services; the failure of the economy to fully employ its labor force.