Suppose that you estimate the following female labor supply relationship:
Labor supplyi = 2320 + 85(after-tax wage)i + 320(college graduate)i - 120(married)i , where labor supply is measured in annual hours worked and wages are expressed in hourly wages.
a. Interpret the coefficient on after-tax wages. What does this coefficient imply about the effect of increasing wages from $6 to $10 per hour on labor supply?
b. What can we learn from this estimate about the income and substitution effects of wages on labor supply?
c. How might this coefficient estimate be biased? Explain.