1. Questions about Difference in Differences Consider the following hypothetical scenario. Washington (state) passes a law...

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1. Questions about Difference in Differences Consider the following hypothetical scenario. Washington (state) passes a law subsi- dizing child care for working mothers in 2005. Suppose we are interested in examining the impact of this law on the labor supply of women, and we gather data on the hours of work, Hit for a sample of women across the United States, from 2000-2010. Assume also that Oregon has an economy that is similar to that of Washington, but Oregon did not change its child care policies between 2000-2010. (4 points) (a) Describe the "difference in differences" regression that you would run (and the sample you would use) to estimate the impact of Washington's child care subsidy on female labor supply. Explain the role of every term that you include in the regression. (3 points) (b) Describe at least one econometric problem that the difference in difference method solves here. That is, why is this approach better than some other more naive specifications. Full points awarded for clearly explained, con- crete scenarios. (3 points) (c) Suppose we observe the following average hours worked among women in each state and time period: Table 1: Average Hours Worked by Women: Washington Oregon 23 27 21 22 2000-2004 2005-2010 Based on this data, what would be our basic difference in differences estimate of the impact of the child care subsidy on hours worked for women? (provide a number and show work) 1. Questions about Difference in Differences Consider the following hypothetical scenario. Washington (state) passes a law subsi- dizing child care for working mothers in 2005. Suppose we are interested in examining the impact of this law on the labor supply of women, and we gather data on the hours of work, Hit for a sample of women across the United States, from 2000-2010. Assume also that Oregon has an economy that is similar to that of Washington, but Oregon did not change its child care policies between 2000-2010. (4 points) (a) Describe the "difference in differences" regression that you would run (and the sample you would use) to estimate the impact of Washington's child care subsidy on female labor supply. Explain the role of every term that you include in the regression. (3 points) (b) Describe at least one econometric problem that the difference in difference method solves here. That is, why is this approach better than some other more naive specifications. Full points awarded for clearly explained, con- crete scenarios. (3 points) (c) Suppose we observe the following average hours worked among women in each state and time period: Table 1: Average Hours Worked by Women: Washington Oregon 23 27 21 22 2000-2004 2005-2010 Based on this data, what would be our basic difference in differences estimate of the impact of the child care subsidy on hours worked for women? (provide a number and show work)

Answer rating: 100% (QA)

ANSWER a We will use a sample comprising of women in Washington and Oregon and their hours worked from 2000 to 2010 We will create dummy variables 1 d... View the full answer