Business, 05.03.2020 13:12 bear342

Labor economists often study the returns on investment in education (see, e. g., Card 1999). Suppose we have data on salaries of a set of people, some of whom went to college and some who did not. A simple model linking education to salary is:
Salaryᵢ = β₀ + β₁ College graduateᵢ + ϵᵢ
, where the value of Salaryᵢ, is the salary of person i and the value of College graduateᵢ; is 1 if a person i graduated from college and 0 if a person i did not.
(a) What does β₀ mean? What does β₁ mean?
(b) What is in the error term?
(c) What are the conditions for the independent variable X to be endogenous?
(d) Is the independent variable likely to be endogenous? Why or why not?
(e) Explain how endogeneity could lead to incorrect inferences.

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Labor economists often study the returns on investment in education (see, e. g., Card 1999). Suppose...

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