st: how to deal with categories?

[Andrea Bennett <mac.stata@gmail.com>]

Dear all,

Right now I am wondering what is the better way to deal with  
categorical information.

1.
What is about the best way to implement income groups into a  
regression? E.g. as income has (usually) no upper limits, I tend to  
generate an interaction term (dummy==1) if the individual is in the  
highest income category (0 if else). Further, am I right in the  
assumption that building categories is usually not sensible when the  
number of observations is high? One issue I face is that very young  
adults and very old adults are under-represented in the dataset  
(meaning, not that many unique observations for these groups, sample  
itself is good). Is there a rule of thumb what would be better,  
building categories for all age-classes (increasing observations in  
young/old group) or do not build classes at all (having more detailed  
info)? It's clearly a trade-off but maybe there's some advice. I tend  
not to use categories here, also because age-squared might be  
important to have at hand, later.

2.
The "xi" command can help to make life less messy (in large data sets,  
I think). But it seems to kill all my value labels in these  
categorical groups! I could not find any option to tell "xi" to use  
the already defined value labels. Is there a workaround at hand so  
that the regression table will instead use the values defined (e.g.  
for sex; 0==male, 1==female) as new variable names?

Many thanks for all your inputs,

Andrea 
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