Labor economists often study the returns on investment in education (see, e.g., Card 1999). Suppose we...

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Labor economists often study the returns on investment in education (see, e.g., Card 1999). Suppose we have data on salaries of a set of people, some of whom went to college and some who did not. A simple model linking education to salary is Salary Bo + B₁ College Graduate, + €₁ where the value of Salary, is the salary of person i and the value of College Graduate, is 1 if person i graduated from college and is 0 if person i did not. (a) What does ß, mean? What does ß, mean? (b) What is in the error term? (c) What are the conditions for the independent variable College Graduate to be endogenous? (d) Is the independent variable likely to be endogenous? Why or why not? (e) Explain how endogeneity could lead to incorrect inferences. Labor economists often study the returns on investment in education (see, e.g., Card 1999). Suppose we have data on salaries of a set of people, some of whom went to college and some who did not. A simple model linking education to salary is Salary Bo + B₁ College Graduate, + €₁ where the value of Salary, is the salary of person i and the value of College Graduate, is 1 if person i graduated from college and is 0 if person i did not. (a) What does ß, mean? What does ß, mean? (b) What is in the error term? (c) What are the conditions for the independent variable College Graduate to be endogenous? (d) Is the independent variable likely to be endogenous? Why or why not? (e) Explain how endogeneity could lead to incorrect inferences.

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a The intercept terms o depicts the minimum amount of salary that a person will be earning if ... View the full answer