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

Exercise 25

To test the effectiveness of a job training program on the subsequent wages of workers, we specify the model

where train is a binary variable equal to unity if a worker participated in the program. Think of the error term u as containing unobserved worker ability. If less able workers have a greater chance of being selected for the program, and you use an OLS analysis, what can you say about the likely bias in the OLS estimator of ?1? (Hint: Refer back to Chapter 3.)

Step 1 of 3

Consider the model that helps determine the effectiveness of a job training program on the subsequent wages of workers, given by: