ECON321 Lecture Notes - Lecture 26: Econometrica, Dependent And Independent Variables
17 Oct 2015
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Introduction to econometrics 321, spring 2013, university of waterloo. Example: how does education a ect the wage a person receives? (i. e. what is the private return to education?) The object of interest is (cid:1)wage (cid:1)years_of_education (i. e. how much does wage change for each unit change in years of education?) Remark. (cid:1)wage (cid:1)years_of_education is the slope of the relation between wage and years_of_education. This relationship may be non-linear but throughout the course (with some excep- tions) we will assume that it is linear. The bene(cid:133)t of investing in education depends in part on the slope of the relation between education and wage. Knowing the slope is therefore valuable for policy analysis. The most important thing about the object of interest (cid:1)wage (cid:1)years_of_education is that it is unknown! Therefore we must use data to estimate it. We assume that for each individual i, her wage, wagei, is determined by her years of education, years_of_educationi, and other factors.
