ECONOMETRICS COURSEWORK ASSIGNMENT 2

For this assignment, use the dataset eaef_as2.dta, which has 1200 observations, and is
downloadable from SyD. The data contain information on wages and characteristics of workers in
United States, in 2002. It includes a variable ‘catgov’ which indicates whether the person works
for government.
TASK:
a) Build a model to estimate how much more or less workers on average earn when they work
for government as opposed to private sector, holding the other determinants of wages
constant. Interpret the findings. [80%] b) Assess whether government is a more ‘meritocratic’ employer. Do this by expanding the
model in a) to test whether ability (asvabc) and years of schooling (s) have a larger effect on
earnings in government than in the private sector. Interpret the findings. [20%] Practical notes:
It may be sensible to use a do-file to avoid retyping the regression commands multiple times. If you
however prefer to work from the command line, note that by pressing ‘page up/down’-buttons you
can get the previous commands to the command line – this may be the quickest way to modify the
your estimation.
Points to keep in mind:
-Are you controlling all relevant variables?
-Could you improve by making transformations to variables / assume non-linearities?
-Could interactions help you improve the model?
-Are there outliers that distort your model?
-Can you rule out endogeneity of your explanatory variables?
-To tabulate 2 variables use tabulate. Example: tabulate female catgov
-To look up how a command works, use help, such as help regress.
-Are the key assumptions of OLS holding (note that some of them can’t be directly tested)?
-Study the dataset and variables and think what you can and can’t do with it.
-Do your results make sense to you? (No need for literature review or outside references!)
How to submit an answer?
The submitted answer should consist of maximum of 3 printed pages, using font size 10 or 12.
To align stata output nicely use Courier 10 Pitch, or Courier New font, and font size 10 in
Word. For estimations in part a) and b) only add the 4 sections as shown on next page. Nothing
more, please. Longer answers will be penalised by at least 5 points.
The next page is a simplified sample answer for part a). Answer should be in similar format in
part b)
Grading is based on the overall sensibility of the preferred models, and their correct interpretation
and testing. There is no one right answer for this assignment. Finally, while this is an open-ended
project, returns to further efforts diminish quickly after a certain point.
SAMPLE ANSWER for part a) (Note: This would not be an answer with high grade)
Candidate number 12345
a)
1. PREFERRED FINAL MODEL
Source | SS df MS Number of obs = 1200
————-+—————————— F( 5, 1194) = 71.77
Model | 64141.7848 5 12828.357 Prob > F = 0.0000
Residual | 213421.268 1194 178.744781 R-squared = 0.2311
————-+—————————— Adj R-squared = 0.2279
Total | 277563.053 1199 231.495457 Root MSE = 13.37
——————————————————————————
earnings | Coef. Std. Err. t P>|t| [95% Conf. Interval] ————-+—————————————————————-
catgov | -3.358658 .9409986 -3.57 0.000 -5.204853 -1.512464
s | 2.479537 .1581709 15.68 0.000 2.169213 2.789861
tenure | .7054635 .2014462 3.50 0.000 .3102357 1.100691
tenure2 | -.015971 .0093648 -1.71 0.088 -.0343443 .0024024
female | -5.913968 .7880701 -7.50 0.000 -7.460125 -4.367812
_cons | -14.35778 2.225892 -6.45 0.000 -18.72488 -9.990688
——————————————————————————
2. EXPLANATION OF CONSTRUCTED VARIABLES:
tenure2 = tenure^2
3. INTERPRETATION (Key findings, and rationale for the choice of the final
model)
Working for government reduces earnings by 3 dollars per hour, given the control
variables above. I have left out variables that weren’t significant or
interesting for wage determination.
4. DIAGNOSTIC TESTS FOR NORMALITY AND HETEROSCEDASTICITY
Command ‘estat hettest’ suggests I have heteroscedasticity, the null is
rejected.
‘sktest’ on the residuals suggests that they are not normally distributed.
pt
F C B A HD
Identification of legal issues, legislation
and case law
Overall the student has identified the
deduction issues, legislation and where
appropriate case law and rulings.
0 0.5 1.5 2 2.5 3
Application
Demonstrated level of understanding of the
law relating to allowable deductions for
business expenses for RAB.
1 2 5 6 8 10
Demonstrated level of understanding of the
law relating to allowable deductions for
repairs for Barry.
1 2 5 6 7 9
Demonstrated level of understanding of the
law relating to allowable deductions for car
expenses for Stella.
1 2 5 6 7 9
Conclusions
Overall, the student has drawn appropriate
and valid conclusions after applying the law. 0 0.5 1.5 2 2.5 3
Total out of 34
LAW5230 Assignment Semester 3, 2015
Page | 7
Case Study 3 – Capital Gains Tax
Issues
Little
attem
pt
F C B A HD
Identification of legal issues,
legislation and case law
Overall the student has identified the
relevant capital gains tax issues,
legislation and where appropriate case law
and rulings.
0 0.5 1.5 2 2.5 3
Application
Demonstrated level of understanding of
the specific capital gains tax issues in
relation to the sale of Billy’s residence.
1 2 4 5 6.5 7.5
Demonstrated level of understanding of
the specific capital gains tax issues in
relation to the sale of Billy’s coins.
1 2 4 5 6.5 7.5
Conclusions
Overall, the student has drawn appropriate
and valid conclusions after applying the
law (Calculation and explanation of
net capital gain, record-keeping).
0 1 2 2.5 3 4
Letter of Advice
Overall clarity of expression, use of
grammar and appropriateness of the
language and terminology for a client
letter of advice.
0 1 2.5 3.5 5 6
Total out of 28
General Criteria
Little
attem
pt
F C B A HD
Ability to use chosen referencing method
appropriately and correctly.

Description of Performance Standards;
HD – the student has shown a very high level of demonstrated ability in relation
to the stated criteria by covering all valid points in a clear and succinct manner.
The student may have also demonstrated an ability to think beyond the facts and
recognise the broader implications of the facts, missing facts or alternate
arguments.
A – The student has show a high level of demonstrated ability in relation to the
stated criteria by either covering all valid points or by covering the majority of
valid points in a clear and succinct manner. The student may have very briefly or
occasionally shown ability at the HD level.
B – The student has show a good level of demonstrated ability in relation to the
stated criteria by covering most of the valid points. The student may have made
some minor incorrect statements or missed some minor points.
C – The student has show a satisfactory level of demonstrated ability in relation to
the stated criteria by covering the main valid points. The student may have made
a number of minor incorrect statements but did make incorrect statements in
relation to major points.
F – The student has not shown a satisfactory level of demonstrated ability in
relation to the stated criteria by missing some main points or by making incorrect
statements in relation to major points.
Little Attempt – The student has not addressed or attempted to address this
criterion.
END OF ASSIGNMENT

 
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