Empirical Methods of Economic - Coursework Example

?Econometrics Report Q a. I) Linear economic model for Wage as a function: A Linear econometric model for wage as a function of education and age would be as follows: Wt = f (At, Ey) (1) In this model, Wt will denote the wage a worker is going to be paid in a particular month, At will denote the age of the worker in that year or month, and Ey will denote the number of years of education a worker has completed. The increase in At, Ey, or both together will result in the increase in the wage of a worker, as the formula suggests the linear relationship between the variables, and wage will be depending on age and education of the worker. The following graph will show how wage will increase when age or education years increase. Figure (1) Ignoring the age variable will result in direct relationship of number of years of education completed with the amount of wage earned in a month. Therefore, the direct relationship is shown as follows: Figure (2) ii) Referring to equation (1) specifying a linear function of wage, with respect to age and education, if Ey is kept constant, i.e. number of years of education remain same, then the direct relationship of wage (Wt) and age (At) will be determined. The specific organizational principle will be applied here, i.e. the experienced workers will be enjoying more wages than those who have lesser experience, and the variable for counting the experience is the age of the workers. The more the age, the more will be experience of the workers, and hence they will enjoy larger amount in terms of their monthly wage. Keeping the education years (Ey) constant, and allowing the wages to change at a different rate, with respect to change in the age of the workers, the graph would still show a direct relationship between Wt and Ay, as follows: Figure (3) As shown above, the education variable is kept constant, and even then the wage will increase as the worker’s age increases. iii) Referring to equation (1), the wage will change whenever there is a change in worker’s age as well as his education. The value will be depending on both the variables. On different educational levels, the wage of the workers will be changing, also accommodating the change in the age of the workers. The function in the equation (1) would remain as follows and the variables will not be kept constant and a change will be predicted on the basis of the two changing at any rate. In this case, the figure (1) can again be considered, where the wages will increase depending upon the increase on the wage as well as the age. The only exception in this section and the previous one is the dependability of age of the worker on his age, whereas both were independent in the former approach, but the results will be the same whether the age factor is going to depend on education years or not, because the wage factor is going to change depending upon the change in age as well as education years altogether. Q (b). For the equation used in question a(i), the data is put in the EViews, and the estimates have been made about the relationship between the wage, age, and education years. The following graph will be showing a relationship of the three variables provided in the equation 1 given above. Figure (4) The figure shows that the data given in the excel sheet provides a direct relationship between the wage that is calculated on the basis of the ages and educational years of each of the workers working in the company. The blue lines highlight wages, red age, and green lines show educational years in case of first model discussed above. The wage will rise whenever the educational years, or age, or bother together will rise. Concerning the second model made in an answer to the question (a) above, the changes in wage were made as a direct function of the changes made in the age of the workers, and it was supposed that the educational experiences were either kept constant or had been ignored, and a direct function was applied on the age and its change on the wage of each of the worker. The graph given in figure (5) below will highlight how the wages are going to change when only the age of the workers are considered. Figure (5) Through the consultation of the above figure, it has been shown that the wages of the workers will increase whenever the ages of the workers rise. In other terms, it can be argued that the workers with more number of years’ experience will be awarded more amounts in their wages, and workers with lesser experience will be awarded lesser amount of wages. But it cannot be said for sure whether the age will be showing the experience or not, and that can only be the exact detail when we have the information when we come to know that at what age the worker is going to be employed, and if so, what restrictions are going to be applied. Hence, in terms of the explanation and figure given above, and according to the second model provided in the previous section, the wage (Wt) will change whenever the age (At) will change and a direct relationship will be found between the two indicators, i.e. from worker’s age to his wage. Third model, as discussed earlier, is going to be the same one as was the case in the first one, because the wages are going to be mutually dependent on the ages as well as educational qualifications or years of the workers. The model was to discuss the changes in the wages with relation to the changes in ages of the workers, where the ages were depending upon the levels of education years. This meant the same thing as in the end; the wages would still be depending on the age and education years of the workers which were the two main variables in the first model established above. Q (c): The T-test is actually used to compare the mean values of the variables involved in a function. The mean of the ages of the workers working in the organization is 38 years, whereas the mean of the years of education completed by the workers is 13. The purpose of finding out the means of the two variables is to assess the ratio of the workers’ age and their educational years. The higher the ratio of age and education years, the more are the chances of the workers getting higher wages, where as the lesser number determined through the ratios would suggest that the workers will be getting lower wages. The F test will be carried out after checking the null hypothesis, which if true, will provide a signal to apply the F test. The test is undertaken by forming the ratio of the two variables, which in this analysis are definitely the age and education years, and then this ratio will be divided by the respective degrees of freedom of these two variables. The test can be undertaken on the two variables desired as both contain non-negative values and can never be negative. Additionally, as the distribution of the two variables is found non-symmetric, hence the test would be applicable to be undertaken. The purpose of this test is to check whether the models into which the data has been put to sort out the results, are compatible with each other or not. The test applied on the above two variables, i.e. age of the workers, and the education years that have completed, suggests that the models have been applied onto them under perfect conditions as the linear relationship of wage with that of age and education years of a worker has been found positively. The significance of this relationship is directly found from the F test as it also provides the relationship to be direct and positive between the wages of the workers on one hand, and their ages as well as the educational years on the other hand. Q (d). The analysis has incorporated two key variables, i.e. age and education years of the workers on the basis of which the wages of the workers are determined or are expected to be found out. The direct relationship between ages and wages, as well as the educational experience and wage of the workers shows no discrepancy in the data and it has been found out to be true throughout the data analysis established with the help of provided data. The absolutely direct relationship any way produces doubts into the minds of the managers and they really think of the variables that affect in terms of an inverse relationship of the two variables, i.e. there must be something that if increases, will be lowering the wages of the workers, and which must be a direct part of the function given above. However, there must also be the chances of the errors made by the analysts during the calculations and hence there must be some space left by the analysts for those errors and mistakes committed. Another variable that could be added into the equation might be the number of days or hours per day that would determine the wage of the worker, as this variable will be the direct one through and after which the easy calculations will be made to check upon the exact amount of earnings made by the workers. Also, the performance in the work field might be a factor on the basis of which the wages might be changed. But this variable is in control of the managers but on the part of the workers as well. The good performance might mean the award of bonuses that might lead to increased wage for a worker. Lastly, it should be noted that the above equation (1) must be reconsidered for errors and mistakes that might have been committed by the analysts during their calculations and therefore it is imperative to introduce a new variable or a constant that will represent as a factor to settle the errors and mistakes made in the calculations in the letter part of the analysis. Such an introduction of the constant in equation (1) might change the equation into the following form: Wt = f (At, Ey, c) (2) In this equation, ‘c’ represents a constant which will settle errors or mistakes. Work Cited: Walsh, Anthony. Statistics for the Social Sciences: with Computer Applications. New York: Harper & Row, 1990. Print. Allen, Michael Patrick. Understanding Regression Analysis. New York: Plenum, 1997. Print. Read More