Krueger (1993) estimates the effects of computer usage on wages. He defines a dummy variable,which we call compwork, equal to one if an individual uses a computer at work. Anotherdummy variable, comphome, equals one if the person uses a computer at home. Using13,379 people from the 1989 Current Population Survey, Krueger (1993) obtains
log (wage) ˆ = βˆ0 +177compwork +.070 comphome +.017 compwork.comphome + other factors. (a)
(.009) (.019) (.023)
(The other factors are the standard ones for wage regressions, including education, experience, gender, and marital status; see Krueger’s paper for the exact list.)
Krueger does not report the intercept because it is not of any importance; all we need to know is that the base group consists of people who do not use a computer at home or at work. It is worth noticing that the estimated return to using a computer at work (but not at home) is about 17.7%. (The more precise estimate is 19.4%.) Similarly, people who use computers at home but not at work have about a 7% wage premium over those who do not use a computer at all. The differential between those who use a computer at both places, relative to those who use a computer in neither place, is about 26.4% (obtained by adding all three coefficients and multiplying by 100), or the more precise estimate 30.2% obtained from equation(100 -exp(β ˆ1- 1)). The interaction term in (a) is not statistically significant, nor is it very big economically.
But it is causing little harm by being in the equation.