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

Exercise 5

For this exercise, we use JTRAIN.RAW to determine the effect of the job training grant on hours of job training per employee. The basic model for the three years is hrsempit = ?0 + ?1d88t + ?2d89t + ?1grantit + ?2grani,t-1 + ?3log(employit) + ai + uit.

(i) Estimate the equation using fixed effects. How many firms are used in the FE estimation? How many total observations would be used if each firm had data on all variables (in particular, hrsemp) for all three years?

(ii) Interpret the coefficient on grant and comment on its significance.

(iii) Is it surprising that grant-1 is insignificant? Explain.

(iv) Do larger firms provide their employees with more or less training, on average? How big are the differences? (For example, if a firm has 10% more employees, what is the change in average hours of training?)

Step 1 of 5

(i)

Estimating the model using the fixed effects, the result is:

There are 135 firms that have been used in the FE (Fixed Effects) estimation.

If each of the firms used in the fixed effects estimation has data on all variables for all the three years, the total number of observations that would be used in the fixed effects estimation would be: