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Data Set I Have Used For My Research

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Data set I have used for my research is from Wooldridge. The sample I am going to use is restricted to individuals who have answered all the elements in survey with 722 observations. Reason for picking up this data set is that it includes the ability measures IQ and KWW, which are the scores from two intelligence tests. The IQ scores were collected as part of a survey of the respondents ' schools. The KWW test examines respondents ' knowledge about the labour market, covering the duties, educational attainment, and relative earnings of ten occupations. Since KWW cannot be used as an independent of education thus it is mostly used as an instrument in this paper. I have performed several regressions using repeated observations of same …show more content…

This simple equation has drawn many research, studies and debate over the years. Much of the controversy focuses on the issue of variable bias. This simple equation violates one of the basic assumption of E(|S) ≠ 0. This leads to two major problems in equation above firstly in job market education has been regarded only signal to higher ability, which leads to more educated individual paid more; this might be because of the correlation of education and wage results from probably individual ability which affects both the variables. Although education does not increase one’s effectiveness but still much of research in past has focused on separating effect of education and unobserved ability by introducing plausible ability variables. Second major problem with equation above is that education is a choice variable, desired level of education depends upon number of other factors for all individuals, which leads to education being an endogenous variable.
Much has been written and researched on how to resolve problem faced above I will not focus on these issues but rather divert focus on the topic not discussed in much detail so far on what really determines ability per se. From last few decades IQ and KWW are the two important measures used to estimate unobserved ability, thus my focus will lie on effect of IQ level on education and can it be replaced with ability variable.

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