Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 27

In the example in equation, suppose that we define outlf to be one if the woman is out of the labor force, and zero otherwise.

(i) If we regress outlf on all of the independent variables in equation, what will happen to the intercept and slope estimates? (Hint: inlf = 1 _ outlf. Plug this into the population equation inlf = ?0 + ?1 nwifeinc + ?2 educ + … and rearrange.)

(ii) What will happen to the standard errors on the intercept and slope estimates?

(iii) What will happen to the R-squared?

Equation