Answer to Question #197639 in Economics of Enterprise for MUZEMIL JOBRE

Question

Log (earnings) = 4.016 + 0.092 . educi  + 0.079 .expei +  0.002 . experi 2 

 ( 0.222)  ( 0.008) ( 0.025) (0.001)

log ( earnings )I  = β1 + β 2 ⋅ educI  + β 3 ⋅ experI  − β 4 ⋅ experI2 + β5 ⋅ abilityI  + εI . 

 In this regression, what do you expect the sign of β5 (the coefficient on ability) to be? 

 a). What do you think the sign of the correlation between ability and years of education? 

 b). If we estimate the regression function with ability included, do you think that the 

estimated value of β 2 will be greater or less than what it was in the regression without  ability? Explain.

 

Answer 1

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