Do liberal arts colleges pay economists more than they pay other professors? To find out, we looked at a sample of 2,929 small-college faculty members and built a model of their salaries that included a number of variables, four of which were:

Where:

S_i = the salary of the ith college professor

M_i = a dummy variable equal to 1 if the ith professor is a male and 0 otherwise

A_i = a dummy variable equal to 1 if the ith professor is African American and 0 otherwise

R_i = the years in rank of the ith professor

T_i = a dummy variable equal to 1 if the ith professor teaches economics and 0 otherwise

a. Carefully explain the meaning of the estimated coefficient of M.

b. The equation indicates that African Americans earn $426 more than members of other ethnic groups, holding constant the other variables in the equation. Does this coefficient have the sign you expected? Why or why not?

c. Is R a dummy variable? If not, what is it? Carefully explain the meaning of the coefficient of R.

d. What€™s your conclusion? Do economists earn more than other professors at liberal arts colleges? Explain.

e. The fact that the equation ends with the notation €œ+ ˆ™ ˆ™ ˆ™€ indicates that there were more than four independent variables in the equation. If you could add a variable to the equation, what would it be? Explain.

Transcribed Image Text:

S; = 36,721 + 817M; + 426A; + 406R; + 3539T; + (259) (456) (24) R? = .77 (458) N = 2929 %3D