TABLE 6.4 BELOW:

Consider the wage equation ln(WAGF) = beta_1 + beta_2 EDUC + beta_3 EDUC^2 + b_4 EXPER + beta_5 EXPER^2 + beta_6(EDUC times EXPER) + beta_7 HRSWK + e where the explanatory variables are years of education, years of experience and hours worked per week. Estimation results for this equation, and for modified versions of it obtained by dropping some of the variables, are displayed in Table 6.4. These results are from the 1000 observations in the file cps4c_small.dat. (a) Using an approximate 5% critical value of t_c = 2, what coefficient estimates are not significantly different from zero? (b) What restriction on the coefficients of Eqn (A) gives Eqn (B)? Use an F-test to test this restriction. Show how the same result can be obtained using a t-test. (c) What restrictions on the coefficients of Eqn (A) give Eqn (C)? Use an F-test to test these restrictions. What question would you be trying to answer by performing this test? (d) What restrictions on the coefficients of Eqn (B) give Eqn (D)? Use an F-test to test these restrictions. What question would you be trying to answer by performing this test? (e) What restrictions on the coefficients of Eqn (A) give Eqn (E)? Use an F-test to test these restrictions. What question would you be trying to answer by performing this test? (f) Based on your answers to parts (a) to (e), which model would you prefer? Why? (g) Compute the missing AIC value for Eqn (D) and the missing SC value for Eqn (A). Which model is favored by the AIC? Which model is favored by the SC? Wage Equation Estimates for Exercises 6.4 and 6.5