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

Exercise 21

Use the data in JTRAIN3.RAW for this question.

(i) Estimate the simple regression model re78 = ?0 + ?1aratri + u, and report the results in the usual form. Based on this regression, does it appear that job training, which took place in 1976 and 1977, had a positive effect on real labor earnings in 1978?

(ii) Now use the change in real labor earnings, cre = re78 - re75, as the dependent variable. (We need not difference train because we assume there was no job training prior to 1975. That is, if we define ctratn = tratn78 - tratn75 then ctratn = tratn78 because tratn75 = 0.) Now what is the estimated effect of training? Discuss how it compares with the estimate in part (i).

(iii) Find the 95% confidence interval for the training effect using the usual OLS standard error and the heteroskedasticity-robust standard error, and describe your findings.

Step 1 of 4

(i)

Estimating the simple regression model, the result is:

The usual form of the equation is given by:

Since, the coefficient of is with negative sign, it appear that job training which took place in 1976 and 1977 does not have positive effect on real labor earnings in 1978