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st: Interaction terms when one variable is omitted - query

From   "Mirnezami, Oliver" <>
To   "" <>
Subject   st: Interaction terms when one variable is omitted - query
Date   Thu, 18 Apr 2013 16:35:48 +0000


I have a simple model with an interaction term but one of the covariates is omitted and so I'm not sure how to then interpret the interaction term.


health = constant + job_loss_dummy + college_degree_dummy +  job_loss_dummy x college_degree_dummy  + other_controls + error term

As this a fixed effects model, the college degree dummy is omitted as it is time-invariant (this uses retirement study data so everyone got their degrees many years ago so it does not change over time within the sample). 

The interaction term is significant and the job loss dummy is significant as well.

I would be grateful for any advice on how to interpret the interaction term.

I have looked at various help pages online and textbooks but haven't found an example of this nature where one of the covariates is omitted (in this case due to fixed effects).

Thank you


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