SECTION B Answer ONE question in Section B QUESTION TWO You are investigating the earnings functions. Using the data of 1,744 individuals, your regression model results show as follows (t-ratios are given in parenthesis under each coefficient): In (Earn,) = 8.50 + 0.03 x Age (5.01) (1.10) where Earn is weekly earnings in GBf, and Age is in years. (a) Briefly explain why researchers in general prefer a log-linear specification over a linear specification, in terms of the interpretation of the slope coefficients, and in terms of the distribution of the error term. (18 MARKS) (b) Provide your interpretation on the coefficient on Age, given the regression results. (5 MARKS) You decide to allow the regression line to differ for the below and above 40 years age category. Accordingly you create a dummy variable, Dage, that takes the value of one for age 39 and below, and is zero otherwise. The earnings equation result is provided in the following (t-ratios are given in the parenthesis under each coefficient): In (Earn,) = 6.92 - 3.13 x Dage - 0.019 x Age, + 0.085 x (Dage, x Age) (0.01) (-3.22) (-4.45) (20.01) (c) Using two separate equations, write the estimated regression model: one for the age category 39 years and under, and one for 40 and above. Briefly comment on your findings on the two equations. (15 MARKS) (d) Predict the In(earnings) for a 30 year old and a 50 year old individual. What is the percentage difference between these two individuals? (12 MARKS)