A human resources analyst believes that in a particular industry, the wage rate ($/hr) is related to seniority by an equation of the form W = aebS, where W equals wage rate and S equals seniority (in years). However, the analyst suspects that both parameters, a and b, might depend on whether the workers belong to a union. Therefore, the analyst gathers data on a number of workers, both union and nonunion, and estimates the following equation with regression:
ln(W) = 2.14 + 0.027S + 0.12U + 0.006SU

Here ln(W) is the natural log of W, U is 1 for union workers and 0 for nonunion workers, and SU is the product of S and U.
a. According to this model, what is the predicted wage rate for a nonunion worker with 0 years of seniority? What is it for a union worker with 0 years of seniority?
b. Explain exactly what this equation implies about the predicted effect of seniority on wage rate for a nonunion worker and for a union worker.

  • CreatedApril 01, 2015
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