Dummy variables Usage in cross section In cross section the dummy variable capture differences among groups in the sample data set. 1. Example 1. A maintenance service company for water-filtration systems believes that the repair time is a function of the number of months since last service and the type of repair problem (electrical, or mechanical). 2. Example 2. A company is trying to estimate whether there is any justification for sexual discrimination on the basis of salaries paid by the company. Therefore, they analyze the relationship between salaries paid as a function of experience, level of education, and gender (females, and males). Usage in time series In time series data dummy variables capture differences among time periods. For instance, among quarters, months, or years.