Question: Consider a model where the return to
Consider a model where the return to education depends upon the amount of work experience (and vice versa): 
(i) Show that the return to another year of education (in decimal form), holding exper fixed, is β1 + β3exper. (ii) State the null hypothesis that the return to education does not depend on the level of exper. What do you think is the appropriate alternative? (iii) Use the data in WAGE2 to test the null hypothesis in (ii) against your stated alternative. (iv) Let θ1 denote the return to education (in decimal form), when exper = 10: θ1 = β1 + 10 β3. Obtain θ 1 and a 95% confidence interval for u1. (Hint: Write β1 = θ1 - 10 β3 and plug this into the equation; then rearrange. This gives the regression for obtaining the confidence interval for θ1.)
Transcribed Image Text:
log(wage) = Bo + Bieduc + Bzexper + Bzeduc-exper + u.
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> Let us modify Computer Exercise C4 in Chapter 8 by using voting outcomes in 1990 for incumbents who were elected in 1988. Candidate A was elected in 1988 and was seeking reelection in 1990; voteA90 is Candidate A’s share of the two-part
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