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st: Panel earnings data and coding of time varying indeps


From   "Christer Thrane" <[email protected]>
To   <[email protected]>
Subject   st: Panel earnings data and coding of time varying indeps
Date   Thu, 19 Jan 2006 21:01:39 +0100

Hi,

In my yearly panel data I follow a number of college undergraduates for about ten years after they graduate. Each year after graduation their yearly earnings are recorded along with a binary variable (called MOREED) that indicates whether or not they were enrolled in "above-undergraduate" education in that year (1 = yes, 0 = no). Thus, if a person during the time period first works full-time for three years after graduation before going to the university for two more years and then return to working full-time, he or she will have the following panel sequence for the variable MOREED:

0 (year 1), 0 (year 2), 0 (year 3), 1 (year 4) 1 (year 5), 0, 0, 0, 0, and 0 (year 6, 7, 8, 9, and 10).

When I, using -xtreg, re-, model log earnings as function of MOREED and controls, the former coefficient is large, negative and significant. I guess this makes sense--in the same year as a person goes to school, he or she does not have (enough) time to work full-time.

On the other hand, common sense suggests that increasing ones knowledge (by taking up more education) should "pay off" in the longer run. In other words, MOREED should be positive. In this respect, I'm wondering if maybe the problem is the coding of the variable MOREED. From year 5 to 6, this variable changes its value back from 1 to 0. And although this "makes sense" in the data, it does, in my opinion, not make sense in reality--you cannot "go back" from, say, being a graduate to being an undergraduate. My question therefore becomes:

How can I change the variable MOREED so that it keeps the value of 1 in the remaining panels after it gets a 1 for the first time.

Any insights is appreciated!

Best regards,

Christer Thrane


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