degree. This type of affect was studied by using dummy variables for a bachelor's degree, an advanced degree, a two-year certificate, and no high school diploma; the base group was employees with a high school diploma. Age and experience. 28/ Several forms were tried for these two factors in that they are highly correlated (a correlation coefficient of .726 for our data) and neither was, believed to have a linear affect on salary. Years of government service was represented both as actual years and as the natural logarithm of actual years. The natural log function increases at a decreasing rate, so that the salary differential for each additional year of government service is less at higher levels of service than at lower levels. This, on the average, is what one would expect. The factor of age was represented variously by the following forms: (1) age in years, (2) the natural logarithm of years of age, and (3) the quadratic form of age (i.e., years of age plus years of age squared). When age-squared 28/ (Continued from page 74). for the "degree" variable would mean that, on the average, it is worth $2,000 in annual salary to have a bachelor's degree rather than a high school diploma. has a negative sign, the quadratic form of age function increases at a decreasing rate, similar to the natural logarithmic function. This quadratic form has been used successfully in several previous studies attempting to approximate the age-earnings profile. 29/ It has been shown to fit the Census age-earnings data. In attempting to find what would best represent the combined affects of age and experience, several combinations of the above forms for age and experience were tried. In Albert Rees and George Schultz's study of the Chicago Labor Market, a good fit was obtained using the natural logarithm of years 30/ of service and the quadratic form of age. Geographic location and organizational unit. Dummy variables, similar to those used to represent educational degrees attained, were used to represent geographic location and organizational unit. Individual dummy variables were used for each of the eight regional administrative offices 29/ Albert Rees and George P. Schultz, Workers and Wages in an Urban Labor Market (Chicago: University of Chicago Press, 1970), pp. 148-149. and each of seven organizational units. The base group for the regional comparison was the National Office, and the base group for the organizational comparison was the Employment Standards Administration. After examining the results using individual dummies for each region and organizational unit, the dummy variables were collapsed into composite dummy variables, five regional ones and three organizational ones. A twofold criteria guided the collapsing process: (1) that the individual dummies have a similar affect on salary and (2) that they represent organizations of comparable size. Race and sex. Dummy variables also were used to study the affect of race and sex on salary. Two different approaches for representing race and sex were utilized. First, race dummies for black and nonblack minority with white as the base group were used together with a sex dummy for female with a male base group. Second, the base group was established as white male and individual dummies were used for each of the following groups: white female, black male, black female, nonblack minority male, and non black minority female. C. The Theoretical Models. Various different models were developed. The basic model for all, however, was the following: annual salary = f(race, sex, education, age, government service, geographic Several We believed that annual salary was a function of the factors identified in the equation above, and we believed that they would all be statistically significant. initial computer runs were made to determine the best variables to represent age and experience, to examine for comparable affects among the various geographic and organizational dummies prior to collapsing, and to observe the affect of the educational degree dummies. These runs showed that, as in the Rees and Schultz Chicago labor market study, the best variables to use for age and experience were the natural logarithm of years of government service and years of age plus age-squared. However, the natural logarithm of age alone produced nearly as good a fit as Nevertheless, it was the Rees and Schultz variables. decided to use the logarithmic-quadratic combination because it kept both age and years of government service in the equation; it was felt that when models were developed individually for the different racial-sexual groups, the importance of age or government service as a determiner of salary might vary. For example, service might be more important in predicting the salary of whites, while age might be more important in predicting blacks' salaries, or vice versa. The initial runs also showed that using the educational degree dummies together with the number of years of completed education significantly improved the prediction over that obtained by using just years of education. This would indicate a relationship between education and salary in which salary increases at a uniform average rate for each additional year of education, but then jumps a certain amount over the uniform average increase at those educational years-completed levels where degrees are normally earned. (i.e., roughly at 12, 16, 18, and 20 years). Finally, as mentioned earlier, these initial runs provided the basis for collapsing the eight regional dummies into five and the seven organizational dummies into three. Using the results of these initial runs, we can further specify the basic model given at the beginning of this section. We now hypothesize that salary is a linear function of the following variables: |