 The Interpretation of Multiple Dummy Variable Coefficients: An Application to Industry Effects in Wage EquationsJoseph Hirschberg and Jeanette Lye No 716, Department of Economics - Working Papers Series from The University of Melbourne Abstract: The traditional textbook approach to avoiding the dummy trap problem is to delete a category from each qualitative variable. We illustrate an alternative constraint introduced by Sweeney and Ulveling (1972) which can be used to transform conventional dummy variable coefficients. This constraint serves to simplify their interpretation when the regression equation contains several qualitative variables and allows the computation of a coefficient for the deleted class. Using this constraint the intercept term can be written as the mean and the coefficients for the dummy variables are now interpreted as differences from the mean of the dependent variable rather than the deleted class. Computation of a standard error for the estimated coefficient of the deleted class is also discussed. An application to examine the importance of industry wage affiliation in explaining relative wages is presented. Keywords: ECONOMETRICS; MATHEMATICAL ANALYSIS (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:716 Access Statistics for this paper More papers in Department of Economics - Working Papers Series from The University of Melbourne Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia. Contact information at EDIRC. |
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