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II. Suppose that average worker productivity at manufacturing firms (avgprod) depends on two factors, average hours of training (avgtrain) and average worker ability (avgabil): avgprod

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II. Suppose that average worker productivity at manufacturing firms (avgprod) depends on two factors, average hours of training (avgtrain) and average worker ability (avgabil): avgprod = B. + B, avgtrain+ Bavgabil + u Assume that this equation satisfies the Gauss-Markov assumption. If grants have been given to firms whose workers have less than average ability, so that avgabil and avgtrain are negatively correlated, what is the likely bias in " obtained from the simple regression of avgprod on avgtrain? Derive this bias. (15 marks)

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