Econometrics

Econometrics is the application of mathematics, statistical methods, and computer science, to economic data and is described as the branch of economics that aims to give empirical content to economic relations. More precisely, it is the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference. An introductory economics textbook describes econometrics as allowing economists to sift through mountains of data to extract simple relationships. The first known use of the term econometrics was by Polish economist Pawe Ciompa in 1910. Ragnar Frisch is credited with coining the term in the sense in which it is used today.

If the researcher could randomly assign people to different levels of education, the data set thus generated would allow estimation of the effect of changes in years of education on wages. In reality, those experiments cannot be conducted. Instead, the econometrician observes the years of education of and the wages paid to people who differ along many dimensions. Given this kind of data, the estimated coefficient on Years of Education in the equation above reflects both the effect of education on wages and the effect of other variables on wages, if those other variables were correlated with education. For example, people born in certain places may have higher wages and higher levels of education. Unless the econometrician controls for place of birth in the above equation, the effect of birthplace on wages may be falsely attributed to the effect of education on wages.

Source: Wikipedia