Answer Happy

Question 20 One of your classmates suggests that you run the following specification: wage=B+Bimale + Basouth+Bawhite + Bieduc +8s female educ+ Benorth educ + Binonwhite educ + p 3 pts Note that for every individual it must always hold that male + female 1, north + south 1, and white + nonwhite - 1. Can you run this specification? No, because the model is not linear. O No, because it has a problem of perfect multicollinearity. No, because the independent variables are correlated with the error term. Yes, we can run this specification.

PART 3 (Questions 13-20) (34 points) We are investigating the relation between wages and education. To test the effect of education on wages of workers, we specify the model wage Bo+Bymale + Basouth + Bawhite + Breductu, where wage is the hourly wage in U.S. dollars, educ denote the years of formal education, and male, south and white are dummy variables, male equals 1 for males and is zero for females, while south equals 1 if the worker is from the South of the country and zero if the worker is from the North. Similarly, white equals 1 for white, O for other ethnicities. Question 13 MacBook Pro 3 pts