Final Exam: ECONOMETRICS (INS3049)

PROJECT 4

From the 2021 Labour Force Survey, you have a dataset of 56584 individuals who work as
wage earners in SOEs ( state-owned enterprises) and private enterprises. You are required to
conduct an econometric analysis with the following dependent and independent variables:

Explanatory variables

o age: age of respondents (years)

o edu: the number of schooling years of respondents
o gender of respondents: 1 = male; 0 = female
o married: marital status of respondents: "1=married; 0=single"
o SOE: 1=working in SOE;0=working in private firms
o exper: work experience (years)
o training: 1=if having job training; 0=not
o urban:1=living in urban areas; 0=living in rural areas
o region: a categorical variable including 6 categories: 1=Northern Midlands &
Moutains; 2=Red River Delta; 3= Central Coast Region; 4=Central Highlands;
5=Southeast Region; 6=Mekong Delta Region.
o training:1=vocational training;0=not

The dependent variable:

o wage (hourly wage in thousand VND)

The requirements of the exercise are as follows

1. Specify an economic model and an econometric model showing the factors that affect
wages. Discuss the reasons for selecting explanatory variables and what their expected
signs are.

2. Discuss which assumptions of multiple linear regression (MLR) need to be satisfied to

obtain unbiased coefficient estimates from the OLS estimator for the model. What
assumptions need to be satisfied for precise estimates and hypothesis testing? Discuss
each assumption in detail in the context of the model.

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 Regress wage on all explanatory variables. Please test for homoscedasticity and
multicollinearity. If the variance of the error is not constant, how do you deal with this
issue?

3. Create an interaction term between gender and training variables, then regress the
natural log of wage1 on the following four groups, controlling for all other explanatory
variables in the model:
Group 1: Male workers with training
Group 2: Female workers with training
Group 3: Male workers without training
Group 4: Female workers without training (base group)
What is the proportional differential in wages between the four groups?
What is the proportional differential in wages between the base region (Northern
Midlands & Moutains) and other regions?
4. Controlling for other explanatory variables in the model:

Test the null hypothesis that the effect of education on log of wages is the same for
workers in SOEs and workers in private firms.
Is there a quadratic relationship between experience and log of wages? If yes, what is
the extreme point? Please comment on this relationship.
5. Use Stata to draw a graph showing the different effects of education on wages
(different slopes) between workers in SOEs and workers in private firms.
Use outreg2 to get the regression outputs and then present the results professionally.
6. Please summarize the main findings and propose policy recommendations based on
the findings.

Note for assignment submission:

Students are required to present their assignments and submit a complete report (both hard
and soft copies). Also, students should submit a soft copy of their writing, program code, and
log file to assist the instructor in checking the score. Quantitative economics assignments are
open-ended and do not have a unique solution. The evaluation will be based on the level of
detail, reasoning ability, presentation, and explanation in each writing.
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You should take log(wage+1). Stata command: gen log_wage=ln(wage+1)

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Group members: maximum of 4 students

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