Question

We are interested in estimating how women's hours of work respond to the wages they get. Consider the simultaneous equations relating wages earned and hours worked for women in the labor force: Hours = b0 + b1wage + b2kids + u (1) Wage = c0 + c1hours + c2kids + v (2) A. Where do you think these equations come from - i.e., what are the economic rationale for these equations? B. Would an OLS of Hours on wage and kids give us consistent estimates of the causal effect of wage on hours of work? Please justify your answer. C. Solve for hours and wage in terms of kids, u and v by solving the equations (1) and (2). Now consider equation (1) and check if any of the Gauss-Markov assumptions is necessarily violated for this equation. D. We want to use "kids" as an IV to get rid of the simultaneity problem. How would you do that? Please state carefully what assumptions you need to make and what equation is being identified.

          We are interested in estimating how women's hours of work respond to the wages they get. Consider the simultaneous equations relating wages earned and hours worked for women in the labor force:
Hours = b0 + b1*wage + b2*kids + u (1) 
Wage = c0 + c1*hours + c2*kids + v (2)

A. Where do you think these equations come from - i.e., what are the economic rationale for these equations?
B. Would an OLS of Hours on wage and kids give us consistent estimates of the causal effect of wage on hours of work? Please justify your answer.
C. Solve for hours and wage in terms of kids, u and v by solving the equations (1) and (2). Now consider equation (1) and check if any of the Gauss-Markov assumptions is necessarily violated for this equation.
D. We want to use "kids" as an IV to get rid of the simultaneity problem. How would you do that? Please state carefully what assumptions you need to make and what equation is being identified.

Added by Abigail C.

Question

Please give Ace some feedback