This repository contains code for 2400-DS1AE-Advanced-Econometrics class project, which titled: Family Background in Returns to Education: An Empirical Analysis of Family’s Impact on Personal Achievement.
Abstract
This report estimates the effects of family background in returns to education using panel data collected by the National Longitudinal Survey of Youth (NLSY) and processed by Koop and Tobias. Two empirical models are constructed, the first one consists of all linear relationships between the individual’s wage after logarithm transform and all explanatory variables, the second one with an additional quadratic term of the individual’s potential, which resembles the Mincer wage equation. The result shows that the latter one fit the data better. Meanwhile, OLS, fixed effects model and random effects model are used and the random effects model is eventually chosen as the final model as opposed to the Hausman test. The result suggests that living in a broken residence has negative impact on one’s earnings. Furthermore, parent’s education is used as instruments to account for the endogeneity in education and returns to education is estimated using the 2SLS approach. Both empirical results indicate that family background has a significant role in one’s earnings.