Re: st: RE: Your opinion on income groups and inflation

[SamL <saml@demog.berkeley.edu>]

Making ordered categories dummy variables vs. making them one ordered 
variable by assigning values are both okay.  The dummy variable approach 
is most flexible, allowing the effect to be different across categories. 
But, if you have no theoretical expectation for that, nor any reason to 
believe those particular categorical lines match the lines you'd draw if 
you could, then I agree with Martin below.

Sam

On Sat, 7 Jun 2008, Martin Weiss wrote:


> The obsession with dummies in some posts is a little bewildering. If you
> already have an ordered variable recording trust in government it is hard to
> see why you would want to throw away this information and let the resulting
> dummies eat up your df. Just include the variable in the regression as it
> is. If you absolutely want to, -tabulate, generate- could be helpful. Be
> sure to omit one dummy in the regression to dodge the famous dummy trap...
>
> Martin Weiss
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> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Andrea Bennett
> Sent: Saturday, June 07, 2008 7:19 PM
> To: statalist@hsphsun2.harvard.edu
> Subject: st: Your opinion on income groups and inflation
>
> Dear Statalisters,
>
> I wonder what you do think about the following issues:
>
> 1.
> I have a cross-sectional panel data set with a time span of 10 years
> (5 complete surveys). The survey does NOT ask for (more or less)
> precise income but instead for income groups (e.g. between 3000 and
> 4000 $). As this does cluster the income quite a bit I was wondering
> of how much use it would be to control for the inflation rate (which
> was rather low, about 1-2% p.a.)? Still, I tend to control for
> inflation since there is a gradual shift from lower income groups to
> higher income groups. Would you include the inflation adjustments or
> not?
>
> 2.
> Do I need to treat these income groups as categorical data and
> therefore generate dummies for each income category? Do I also need to
> control for the highest income group with an additional dummy since it
> measures income>=10'000$? This just affects the df quite a bit, I
> think. How would you deal with such a variable?
>
> 3.
> Related to the above question, I wonder how one usually deals with
> interval variables. I have a variable measuring the trust/confidence
> in the national government on a scale of 0-10 (1-point steps). Again,
> as I have learned it, I would have to include a dummy for each trust-
> level. Again, losing df is what brings me to ask you again. Do I need
> to generate dummies here or not?
>
>
> Kind regards and many thanks for your consideration,
>
> Andrea
>
>
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