ECON 330 - Assignment 3

Due: 31th March 2015 4.30pm

Q1) To access the relevant data set, enter the command bcuse discrim in STATA and the
data set will be loaded. If the command is not installed on the STATA you are using, you
can install it using ssc install bcuse command.
Carefully read the description of the data variables and also do look at Computer Exercise
C8, Chapter 3, Woolwridge 5E, Page 112 to get a better idea of the data set so that you
are better equipped to answer the following questions:

2. Use the data in WAGE2.dta

Consider the standard wage equation:
log(wage) = 0 + 1 educ + 2 exper + 3 tenure + u
a) State the null hypothesis that another year of general workforce experience has
twice as much effect on log(wage) as another year of tenure with the current
employer.
b) Test the null hypothesis in part a) against a two-sided alternative at a 5%
significance level by running the regression stated above and using outputs from
STATA to calculate the relevant t-statistic for your stated hypothesis. What can
you conclude?
[Hint: Var (aX b Y )=a2 Var ( X )+ b2 Var (Y ) 2 abCo v (X ,Y )
c) Formulate a new specification to check the above hypothesis directly. Run this
new regression. What can you conclude from the results of this regression about
your hypothesis?

d) How do the results for part b) and c) compare?

e) Use F-test to test for the null hypothesis stated in a) and compare it with part b).