A subsample from the Current Population Survey is taken, on weekly earnings of individuals, their age, and their gender. You have read in the news that women make 70 cents to the $1 that men earn. To test this hypothesis, you first regress earnings on a constant and a binary variable, which takes on a value of 1 for females and is 0 otherwise. The results were: Earn = 570.70 - 170.72×Female, R2=0.084, SER = 282.12.
(a) What are the mean earnings of males and females in this sample? Does the regression result support the claim in the news?
(b) You decide to control for age (in years) in your regression results because older people, up to a point, earn more on average than younger people. This regression output is as follows: Earn = 323.70 - 169.78×Female + 5.15×Age, R2=0.135, SER = 274.45.
Do you think the "practical" magnitude of age coefficient is large or small? Explain.
(c) If you were to conduct this research on wage gap between male and female, what other variable would you consider including in your regression? Explain your reasoning.