Question: The dataset “2021-22 Assignment.wf1” is an EViews workfile. It can be found in the section of Assessment in Canvas. It contains a sample of cross-sectional data with 20 observations from a survey collected in the UK in 2020.

16 Oct 2022,4:41 PM

 

 

Question [100 marks in total]

The dataset “2021-22 Assignment.wf1” is an EViews workfile. It can be found in the section of Assessment in Canvas. It contains a sample of cross-sectional data with 20 observations from a survey collected in the UK in 2020. It contains information about hourly wage (hwage, measured in £), years of schooling (school), and years of work experience (exper). Prepare a report to explain the impact of education on income, based on the requirements below.

 

 

 

Part A: Estimate the impact of years of schooling on hourly wage with an OLS estimation on the following model,

 

 

0           1

ℎ𝑤𝑎𝑔𝑒 = 𝛽 + 𝛽 ∙ 𝑠𝑐ℎ𝑜𝑜𝑙𝑖 + 𝑢𝑖                             (𝐴)

 

The following points should be discussed.

 

•     Explain expected values of hourly wage and years of schooling.

•     Explain standard deviations of hourly wage and years of schooling. •       Plot hourly wage against years of schooling.

•     Estimate the model using EViews.

•     Write the fitted hourly wage and plot it against years of schooling.

 

̂              ̂

0               1

̂              ̂

0               1

•     Derive the estimates, 𝛽 and 𝛽 , using data directly, rather than using EViews.

 

•     Interpret the estimates, 𝛽 and 𝛽 , and discuss the significance using both methods of t-test (two-tailed) and p-value.

 

 

Part B: Additional variable, years of work experience, is now available. Estimate the impact of education and experience on hourly wage with an OLS estimation on the following model,

 

 

0           1                                   2

ℎ𝑤𝑎𝑔𝑒 = 𝛽 + 𝛽 ∙ 𝑠𝑐ℎ𝑜𝑜𝑙𝑖 + 𝛽 ∙ 𝑒𝑥𝑝𝑒𝑟 + 𝑢𝑖                                              (𝐵)

 

The following points should be discussed.

 

•     Estimate the model using EViews.

 

̃       ̃               ̃

0       1                  2

•     Interpret the estimates, 𝛽 , 𝛽 , and 𝛽 . Also, discuss the significance of coefficients using both the methods of t-test (two-tailed) and p-value.

 

•     Explain the F test and discuss the overall significance of the model.

 

̃                                                                   ̂

1                                                                                       1

•     Compare the estimate 𝛽 from model B with the estimate 𝛽 from model A. Explain the cause for the difference.

 

•     Test the statement that “An additional year of schooling increased hourly wage by £0.45.”

•     Test the statement that “An additional year of schooling and an additional year of experience have the same impacts on hourly wage.”