Lab session 2

Lecturer: Nataliia Ostapenko

24/11/2017

1 Solve exercises from homework list

1. Exercise 1

2. Exercise 3

3. Exercise 4

2 Wooldridge, IE, 3.14 and 4.14

1
3 Wooldridge, IE, 4.17

4 Exercise for students

For this exercise use the CARD.dta …le where data is provided on individuals’ years of
education, wages in logarithm, experience and other factors that a¤ect wages. For all the
following parts, write your answers to a .do …le and save your output in a log …le.

1. Find descriptive statistics for the variables: wages, log of wages (lwages), education,
experience, age, fatheduc, motheduc, weight.

2. Scatter plot the wages and education. Comment on the possible relation between these
variables.

3. Regress log of wages on education.

log(wage) = 0 + 1 educ +u

2
 What is the semi-partial elasticity of wages to education? What is the predicted wage
level of a person with 10 years of education?

4. What should be the null and alternative hypothesis to test the signi…cance of the
coe¢ cient of the education variable? Test the null hypothesis at 5%.

5. Regress log of wages on education, experience, squared experience, mother’s education,

father’s education, age, weight and IQ:

2
log(wage) = 0 + 1 educ + 2 exper + 3 exper + 4 motheduc

+ 5 f atheduc + 6 weight + 8 IQ +u

Compare the results with part (3). Are there explanatory variables from part (5) that
could have caused omitted variable bias in part (3)? What could be the reason for
including these explanatory variables?

6. Check the correlation between the regressors and comment if there is multicollinearity
problem.

7. Test that H0 : 4 = 0 vs H1 : 4 > 0 at 5%. Similarly test that H0 : 5 = 0 vs

H1 : 5 > 0 at 5%.

8. Test that H0 : 4 = 5 vs H1 : 4 > 5 at 5%.

9. What is the partial e¤ect of exper ? Can we test if partial e¤ect of exper is equal to
zero? How?

10. What percentage of total variation in log(wage) is explained by these explanatory

variables?

11. Test for the overall signi…cance of the regression.

12. Test if the partial e¤ects of mother’s education, father’s education, weight and IQ are
zero jointly.