The following model allows the return to education to depend upon the total amount of both parents' education, called pareduc:
log(wage) = (0 + (1 educ + (2 educ(pareduc + (3 exper + (4 tenure + u.
(i) Show that, in decimal form, the return to another year of education in this model is
log(wage) / (educ = (1 + (2 pareduc.
What sign do you expect for (2? Why?
(ii) Using the data in WAGE2.RAW, the estimated equation is

Does the estimated return to education now depend positively on parent education? Test the null hypothesis that the return to education does not depend on parent education.

Transcribed Image Text:

log(wage)5.65 +.047 educ +.00078 educ pareduc + (13) 010) 00021) .019 exper t.010 tenure .004) 003) 722, R69.