5.4虚拟变量陷阱.pdf

why not also include in (7.1) a dummy variable, say male, which is one for males and zero for females? Dummy variable trap This model cannot be estimated (perfect collinearity) When using dummy variables, one category always has to be omitted: The base category are men The base category are women Alternatively, one could omit the intercept: Disadvantages: 1) More difficult to test for diffe- rences between the parameters 2) R-squared formula only valid if regression contains intercept Nothing much changes when more explanatory variables are involved. How can we actually test for wage discrimination? The answer is simple: just estimate the model by OLS, exactly as before, and use the usual t statistic. Example Estimated wage equation with intercept shift Holding education, experience, and tenure fixed, women earn 1.81$ less per hour than men Does that mean that women are discriminated against? Not necessarily. Being female may be correlated with other produc-tivity characteristics that have not been controlled for. bsite, in whole or in part. Comparing means of subpopulations described by dummies