1.

We want to verify the existence of wage discrimination in favor of men and therefore
we estimate the following specification:

wherewbh is the gross wage per hour, educ is a measure of the level of education,
expemp the experience of workers in the company and gen a variable that takes the
value 1 if the observations correspond to a man and 0 if the observations correspond to
a woman.

Using a sample of workers employed in the chemical industry in Catalonia, we have got
the following results:

1. Test the possible existence of wage discrimination. How this test could be
affected in the case that the error term were no spherical? (1 point)

Since the parameter associated with the variable gen, , include the effect on
wages if the worker is male, we can say that there is no wage discrimination if
, while if we will have wage discrimination against women. So we
formulated asHo : and as Ha: . Using the t - ratio as a test statistic,
weclearly reject Ho (note that this would be a one tail test), and we conclude that
there is wage discrimination by gender.

If the disturbance were not spherical, although the OLS estimator were consistent

is not efficientand .

Because the t ratio to test the significance of the t parameter , usesthe estimated
variance of the estimator of this parameter, if we get that from matrix ,
we will be making a mistake that could lead to erroneous conclusions about the
existence of wage discrimination, i.e. the t test is not reliable.
2. Under the assumption that if if iis a man and if she is
woman, briefly describe how to obtain unbiased and efficient estimators of the
parameters of the model (1 point)

We need to obtain the estimate of the matrix E which depends only on two
parameters, and , to use in the construction of the FGLS estimator. This
estimator will be consistent and asymptotically efficient. We follow the following
steps:

1. Estimate the OLS model dividing by groups (males and females) and obtain the
residual sof each estimation,

2.With men residuals, we would construct the variance of

them:
where the subscript H is the set of observations relating to men. Equivalently we
would construct the variance of women:

3.We would use the estimated variances of women and men in order to calculate
the FGLS estimator:

−1
∧*  ∧ −2 ∧ −2   ∧ −2 ∧ −2 
β =  ∑ σ D xi xi '+ ∑ σ H xi xi '   ∑ σ D xi yi + ∑ σ H xi yi 
 i∈D i∈H   i∈D i∈H 

3. To test thehomoskedasticity in the error term, it has been estimated an auxiliary

as follows:
What test are we using? And what is your conclusion? (1 point)

This is the White test of heteroskedasticity, as the results in the table correspond
to a regression of the squared residuals of the OLS estimates of the model and the
explicative variables of the model, their squares and cross-products.

The null and alternative hypothesis of the contrast are: Ho: homoskedasticity, Ha:
heteroskedasticity.
The test statistic is:
The decision criteria: Under . So as , we reject
the null hypothesis of homoskedasticity.

4. Is there another way to test the same hypothesis with the White test? i.e which is
its special case? Describe it and say which are the possible advantages of such a
procedure.

You can use the special case of the White test where rather than regressing the
residuals on all variables, squares and cross product you regress them on the fitted
and squared fitted values of the regression and test the joint significance of them
The advantage is not to lose degrees of freedom but adding so many variables (as
in the general white test) in the auxiliary estimation
.