Which of the following equations corresponds to the most common form of the empirical earnings equation? S denotes the number of years of schooling, EXP denotes the number of years of experience, AGE denotes the age of the worker, epsilon denotes a disturbance term, r denotes the rate of return to education, and ln denotes the logarithmic operator.

Question

Quizplus · Accepted Answer

The most common form of the empirical earnings equation in economics is given by $ \ln Y = a + rS + \beta_1 \text{EXP} + \beta_2 \text{EXP}^2 + \epsilon $, where $ \ln Y $ is the natural logarithm of earnings, $ S $ is years of schooling, $ EXP $ is years of experience, and $ EXP^2 $ captures the diminishing returns to experience. This corresponds to choice D, which correctly includes a constant term $ a $, a coefficient $ r $ for schooling $ S $, linear and quadratic terms for experience $ EXP $ and $ EXP^2 $, and an error term $ \epsilon $.

Which of the Following Equations Corresponds to the Most Common