In the following regression model: Y i = 1 + 2 D i + u
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In the following regression model:
Yi = β1 + β2Di + ui
Y represents hourly wage in dollars and D is the dummy variable, taking a value of 1 for a college graduate and a value of 0 for a high-school graduate. Using the OLS formulas given in Chapter 3, show that β̂1 = Y̅hg and β̂2 = Y̅cg – Y̅hg, where the subscripts have the following meanings: hg = high-school graduate, cg = college graduate. In all, there are n1 high-school graduates and n2 college graduates, for a total sample of n = n1 + n2.
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From the OLS formulas given in Chapter 3 we know t...View the full answer
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