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Let kids denote the number of children ever born to a woman, and let educ denote years of education for the woman. A simple model relating fertility to years of education is: kids= βo+ β1.educ + ε, where ε is the unobserved error. a. What kinds of factors are contained in ε? Are these likely to be correlated with level of education? b. Will a simple regression analysis uncover the ceteris paribus effect of education on fertility? Explain

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Answer:

a.

There are multiple factors contained in the unobserved error  ε. These factors are of two types i.e, economic and social.

Social Factors:

1. Husbad's level of education.

2. Current marital status

3. Religion, norms and culture

4. Residence location

Economic Factor:

1. Total family networth

2. Husband's income

3. Wife's income

4. Future income and sources

Most of these factors are directly or indirectly related to the level of education of woman. As an educated man would most probably tend to marry an educated woman. Therefore, these factors are correlated in a sense with level of education.

b.

A simple regression analysis can uncover the ceteris paribus effect of education on fertility as a term for unobserved errors is already inducted in formula.

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