4.2 Marginal effects
This subsection provides selected examples of the extent to which people’s wage rates may change given a change in their observable characteristics.
Consider first the impact of postgraduate qualifications on the wage rates of individuals. A typical 30-year old sole parent with a postgraduate degree is expected to be offered a wage rate which is about 8.7 per cent higher than for those without post secondary qualifications[15]. Single females without dependents and married men of 30 years old with postgraduate qualifications can expect a wage that is about 30 per cent higher, while single males without dependents or married females with a postgraduate qualification receive a wage of around 40 per cent higher. Sole parents thus experience the lowest effect from education on wage levels, which may be explained by their higher probability of withdrawing temporarily from the labour market, while having young children.
Second, consider the impact of living in the north of the North Island on the wage rate of individuals. Wage rates are lower across all five demographic groups compared to individuals residing in Auckland. Sole parents experience the smallest effect on their wage rates a 5.6 per cent decrease by living in the north of the North Island. All other groups have wage rates which are between 7.2 and 8.9 per cent lower than in Auckland.
Finally, consider the impact of age on the wage rates of individuals. To calculate the age effect for the lowest education groups (school certificate or less than school certificate), we need to take into account the coefficients of age and age squared. In addition, the effect depends on the starting age. The effect for married men is an increase of 16.8[16] per cent for a ten-year increase in age from 25 to 35 years and a 3.7 per cent increase for a ten-year increase from 35 to 45 years. This reflects the turnaround point in people’s early forties, from an increasing wage rate with age to a decreasing wage rate with age. This turnaround point occurs in the early forties for all lower educated groups. For a married man with a postgraduate degree the percentage wage increase from 25 to 35 years is 31.7 per cent and from 35 to 45 years it is 17.0 per cent[17]. The maximum wage rate is expected in the early fifties. Except for married women, the age-earnings profiles are steeper for higher educated people and the maximum wage rate occurs at an older age.
Notes
- [15]This value is calculated by using the following formula: [exp(relevant coefficients) – 1]´100%. The relevant coefficients are the education level coefficients and the interaction terms of education and age. In this example: [exp(0.4187-3 ´0.017)-1] ´100% =44.4% for a 30-year old married woman.
- [16]The formula used in this calculation is [exp(coefficient of age + coefficient of age squared+2*(age at start/10)*(coefficient of age squared)) – 1]´100%. In this example: [exp(0.5104-6*0.0592)-1] ´100% =16.8%.
- [17]The formula used in this calculation is [exp(coefficient of age + coefficient of age*education level+ coefficient of age squared+2*(age at start/10)*(coefficient of age squared)) – 1]´100%. In this example: [exp(0.5104+0.1205-6*0.0592)-1] ´100% =31.7%.
