To assess the feasibility of a guaranteed annual wage (negative income tax), the Rand Corporation conducted a study to assess the response of labor supply (average hours of work) to increasing hourly wages.* The data for this study were drawn from a national sample of 6,000 households with a male head earning less than $15,000 annually. The data were divided into 39 demographic groups for analysis. These data are given in the following table. Because data for four demographic groups were missing for some variables, the data given in the table refer to only 35 demographic groups. The definitions of the various variables used in the analysis are given at the end of the table.

a. Regress average hours worked during the year on the variables given in the table and interpret your regression.

b. Compute the variance inflation factors (VIF) and TOL measures for the various regressors.

c. If there is the multicollinearity problem, what remedial action, if any, would you take?

d. What does this study tell about the feasibility of a negative income tax?

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NEIN Assets Age Observation Hours School Rate ERSP ERNO DEP 291 380 10.5 2157 2.905 1121 7250 38.5 2.340 2174 10.5 2 2.970 1128 301 398 7744 39.3 2.335 2.851 3 2062 2.350 1214 326 185 3068 40.1 8.9 2.511 1203 117 4 2111 49 1632 22.4 1.159 11.5 5 2134 2.791 1013 594 730 12710 57.7 1.229 8.8 2185 3.040 1135 287 382 7706 38.6 2.602 10.7 474 9338 4730 8317 2210 3.222 1100 295 39.0 2.187 11.2 310 2105 2.493 1180 255 39.9 2.616 9.3 2267 2.838 1298 252 431 38.9 2.024 11.1 264 38.8 10 2205 2.356 885 373 6789 2.662 9.5 328 10.3 11 2121 2.922 1251 312 5907 39.8 2.287 12 2109 2.499 1207 347 271 5069 39.7 3.193 8.9 38.2 13 2108 2.796 1036 300 259 4614 2.040 9.2 9.1 14 2047 2.453 1213 297 139 1987 40.3 2.545 2174 15 3.582 1141 414 498 10239 40.0 2.064 11.7 16 2067 2.909 1805 290 239 4439 39.1 2.301 10.5 289 17 2159 2.511 1075 308 5621 39.3 2.486 9.5 392 10.1 18 2257 2.516 1093 176 7293 37.9 2.042 19 553 1985 1.423 381 146 1866 40.6 3.833 6.6 560 296 172 20 2184 3.636 1091 291 11240 39.1 2.328 11.6 21 2084 2.983 1327 331 5653 39.8 2.208 10.2 2806 22 2051 2.573 1194 279 40.0 2.362 9.1 23 2127 3.262 1226 314 408 8042 39.5 2.259 10.8 24 2102 3.234 1188 414 352 7557 39.8 2.019 10.7 364 328 973 25 2098 2.280 272 4400 40.6 2.661 8.4 26 140 2042 2.304 1085 1739 41.8 2.444 8.2 383 7340 27 2181 2.912 1072 304 39.0 2.337 10.2 3.015 1122 28 2186 30 352 7292 37.2 2.046 10.9 29 2188 3.010 990 366 374 7325 38.4 2.847 10.6 209 294 1370 30 2077 1.901 350 95 37.4 4.158 8.2 947 3.047 31 2196 3.009 342 6888 37.5 10.6 32 2093 1.899 342 311 120 1425 37.5 4.512 8.1 296 387 10.5 33 2173 2.959 1116 7625 39.2 2.342 2.971 34 2179 1128 312 397 7779 39.4 2.341 10.5 2200 7885 35 2.980 1126 204 393 39.2 2.341 10.6