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It has been claimed that an extra year of experience increases wage by 0.8% and that an extra year of education is worth 14 extra
It has been claimed that an extra year of experience increases wage by 0.8% and that an extra year of education is worth 14 extra years of experience. This means an extra year of education increases wage by 11.2%. We will investigate this hypothesis using data in the file cps5_small. Only those observations for which years of education exceeds 7 will be used. Perform all tests at a 5% level of significance. (a) Estimate the model ln(W AGE) = 1 2EDU C 3EXP ER e and jointly test the claims about the marginal effects of EDUC and EXPER. (b) Use RESET to test the adequacy of the model; perform the test with the squares of the predictions and the squares and cubes of the predictions. (c) After estimating the model ln(W AGE) = 1 2EDU C 3EXP ER 4EDU C2 5EXP ER2 6EXP ER EDU C e jointly test the claims about the marginal effects of EDUC and EXPER when EDUC = 10, EXPER = 5. 2
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