Consider this model h = 30 + 1w + B2Y + B3X+u where we are interested...

 

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Consider this model h = 30 + 1w + B2Y + B3X+u where we are interested to regress hours of work (h) on hourly wage (w), non-labour income (Y) and some other personal characteristics (X). u is the error term. a. Derive the income elasticity, compensated and uncompensated wage elasticities using the estimated coefficients in this regression. b. What should be the sign of 1 and 2 coefficients? c. Briefly, explain some of the limitations that exist in empirical studies when estimating such regression. Consider this model h = 30 + 1w + B2Y + B3X+u where we are interested to regress hours of work (h) on hourly wage (w), non-labour income (Y) and some other personal characteristics (X). u is the error term. a. Derive the income elasticity, compensated and uncompensated wage elasticities using the estimated coefficients in this regression. b. What should be the sign of 1 and 2 coefficients? c. Briefly, explain some of the limitations that exist in empirical studies when estimating such regression.

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a To derive the income elasticity compensated wage elasticity and uncompensated wage elasticity using the estimated coefficients in the regression mod... View the full answer