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Econometrics Problem: The Fixed Effects Analysis of Jeffrey Grogger

Coursework Instructions:

Please read the article first and then answer the questions.

(30 points) The following questions pertain to the 1995 article by Jeffrey Grogger, “The Effect of Arrests on the Employment and Earnings of Young Men,” Quarterly Journal of Economics 110.

(i) Briefly describe the purpose of Grogger’s article.

(ii) Describe the population that Grogger’s analysis applies to. Be sure to mention any omitted groups. Do you think Grogger’s population is an interesting one for the questions he is asking?

(iii) Is Grogger’s data set a balanced panel (longitudinal) data set or an unbalanced panel? Explain. How many men are in the sample that he uses for the econometric analysis? (iv) What are average quarterly earnings across all men and time periods in the sample? What fraction of men/quarter observations indicate at least one arrest?

(v) How come Grogger prefers a fixed effects analysis to pooled OLS? Do you agree with his reasoning?

(vi) For the arrest variables, do the relationships between the pooled OLS and FE coefficients in columns (1) and (2) of Table III make sense to you? Explain. (vii) Using the FE estimates, if a man was arrested more than once in the current quarter, including at least one arrest for a property crime, how much lower is his employment probability estimated to be compared with a man not arrested?

(viii) For earnings, Grogger mainly describes the effects of arrests on earnings in terms of percentages. Why do you think he did not just use log(earnings) as the dependent variable to get percentage effects directly?

(ix) How come the standard errors for (pooled) OLS in Table III are almost certainly unreliable? What about the standard errors for fixed effects?

(x) How come coefficients for the variables Black and Hispanic are not reported in Table III for the FE estimates? What approach could Grogger have used to obtain the FE estimates in Table III and also coefficients on Black and Hispanic? [Hint: I will push you a little here and have you read Section 14.3 in my book.]

Coursework Sample Content Preview:

Econometrics Related Problem
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Briefly describe the purpose of Grogger’s article.
The purpose of Grogger’s article is to determine whether being arrested actually leads to a fall in the arrestee’s earnings by estimating the effect of the arrest and prosecution on the employment and earnings of young male arrestees.
Describe the population that Grogger’s analysis applies to. Be sure to mention any omitted groups. Do you think Grogger’s population is an interesting one for the questions he is asking?
Grogger’s analysis applies to the black and Hispanic, and includes the whites as the omitted group. Grogger states that Black and Hispanic are mutually exclusive categories. From an individual perspective, Grogger’s population is an interesting one for the questions he is asking because most arrest data overrepresent blacks in their samples relative to the general population. This implies that blacks are at a high rate of committing crimes and being convicted compared to the general population. Therefore, I think Grogger’s population is an interesting one as far as the goal of the study is concerned.
(iii) Is Grogger’s data set a balanced panel (longitudinal) data set or an unbalanced panel? Explain. How many men are in the sample that he uses for the econometric analysis? (iv) What are average quarterly earnings across all men and time periods in the sample? What fraction of men/quarter observations indicate at least one arrest?
Grogger’s data set is an unbalanced panel for three reasons. Firstly, it focuses on the data collected in one state: - California. According to the article, the criminal justice data used in the study came from a random sample of arrestee records in the California Justice Department’s Adult Criminal Justice Statistical System (ACJSS). Samples of arrestee records in other states were not considered. Secondly, a random sample of male arrestees born in 1956, 1958,1960, and 1962 was drawn from the ACJSS. No female records were obtained.
Lastly, due to overrepresentation of blacks I the criminal records, Grogger focused on the African-Americans and the Hispanic population, but omitted the whites. Simply put, Grogger’s data set is skewed because he does not balance the samples according to region, gender and race. About 24551 men are in the sample Grogger uses for econometric analysis. The average quarterly earnings across all men in the sample are $ ...
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