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this video will cover omitted variable bias in regression analysis at the end of this video you should feel comfortable predicting the effect of omitting a variable from a model including the direction of bias if any of estimated coefficients and describing how omitted variable bias results from a relationship between an independent variable and the error term to start our discussion lets reconsider a question weve asked before what is the effect of schooling on earnings earlier we estimated a model with earnings as a dependent variable and years of schooling as the independent variable we used the NL s Y to estimate the model in Stata and we found these results each additional year of schooling was associated with an increase in earnings of $1 and 88 cents per hour we might ask whether there is something missing from this model you could probably make a long list of other things that are likely to affect earnings lets pick one that is readily available in the NL s Y the composite s
