A. Assignment question: answer all of the following questions.
Note that this is not an essay type assignment. Please simply answer the questions below
one by one.
Download Stata data file CPS08.dta from the Blackboard to answer the following
questions. This data set contains data for full-time, full-year workers, age 25-34, with a
high school diploma or B.A./B.S. as their highest degree. A detailed description for this
data set is given in PDF file CPS08_Description, which is also available from the
Blackboard.
1. Run a OLS regression of average hourly earnings (AHE) on age (AGE), gender
(Female), and education (Bachelor) to answer the following questions (10% for
each item)
a) If age increases from 25 to 26, how are earnings expected to change?
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b) According to the regression result, how the earnings expected to change once
one have obtained a bachelor degree?
c) Does the regression result suggest gender discrimination in the labour market?
Support your argument with evidence and appropriate hypothesis test.
d) Does the regression result suggestion benefit of receiving education? Support
your argument with evidence and appropriate hypothesis test.
2. Read the teaching materials and the Stock and Watson textbook (especially Chapter
9), discuss the internal validity of the regression that you used to answer Question 1.
More specifically, include a discussion of (10% for each item)
a) Possible omitted variable bias;
b) Misspecification of the functional form of the regression;
c) Errors in variables;
d) Sample selection;
e) Simultaneous causality; and
f) Inconsistency of the OLS standard errors
