Question

For each of the following estimated equations of weekly wage (in $) on education (in years), interpret in a sentence the relationship between education and wage:

(?)????̂=150+100log(????)

(?)log(????)̂=5+0.08????

(?)log(????)̂=3+1.2log⁡(????)

Answer 1

a) Taking derivative both sides we get,

This implies,

There is positive relationship between wage and educ. However, the slope decreases with increase in education.

b) Taking derivative both sides,

This implies,

There is positive relationship between wage and education and the slope increases with increase in wage.

c) Taking derivative both sides,

Elasticity of wage w.r.t education = 1.2

For 1% increase in education there will 1.2% increase in wage.