Assume that the following annual earnings (Y) equations were estimated separately for union (subscript U) and non-union (subscript N) workers. ED denotes years of education (averaging 14 for union workers and 16 for non-union workers), SEN denotes years of seniority with the company (averaging 12 for union workers and 10 for non-union workers).
Y U = 22,000 + 1000 ED U + 1000 SEN U
Y N = 8000 + 2000 ED N + 500 SEN N
-What do the coefficients of the equations in Reference 15-01 stand for?

Question

Assume that the following annual earnings (Y) equations were estimated separately for union (subscript U) and non-union (subscript N) workers. ED denotes years of education (averaging 14 for union workers and 16 for non-union workers), SEN denotes years of seniority with the company (averaging 12 for union workers and 10 for non-union workers).
Y U = 22,000 + 1000 ED U + 1000 SEN U 
Y N = 8000 + 2000 ED N + 500 SEN N 
-What do the coefficients of the equations in Reference 15-01 stand for?

Quizplus · Accepted Answer

The coefficients in the equations show that for union workers, both education and seniority contribute to earnings, but the return to education (1000) is less than for non-union workers (2000), indicating that unions may reduce the returns to skill-based characteristics such as education (C). The higher base pay for union workers (22000 vs. 8000) suggests that unions bargain for a more compressed wage structure with higher base pay (B). The presence of a seniority coefficient in both equations, especially the equal value for union workers, suggests that unions do indeed bargain for seniority-based wage increases (A). Therefore, all of the choices are correct.

Assume That the Following Annual Earnings (Y) Equations Were Estimated