When plotting log wages (y-axis) against years of schooling (x-axis), the slope of the regression line indicates
A) the average wage.
B) the average logged wage.
C) the average years of schooling.
D) the economic return to each additional year of schooling measured in dollars.
E) the economic return to each additional year of schooling measured in percentage terms.

Question

Quizplus · Accepted Answer

The slope of the regression line in a plot of log wages against years of schooling represents the percentage change in wages associated with one additional year of schooling, not the absolute dollar change. This is because the logarithmic transformation of wages turns multiplicative relationships into additive ones, where the slope indicates a proportional (percentage) change rather than an absolute (dollar) change.

When Plotting Log Wages (Y-Axis) Against Years of Schooling (X-Axis)