An industry analyst constructed a model describing the cost of building cars at plants operated by different manufacturers in North America. As a first step, the analyst regressed total production cost (in dollars) on the number of labor hours for a sample of vehicles. The data used came from two plants, one operated by a domestic manufacturer under contract with the labor union known as the United Auto Workers (UAW), and the other operating a nonunionized plant. (UAW members cost more than nonunion labor; The Wall Street Journal in May 2006 estimated total costs run $74 per hour if benefits are included.) The analyst included a dummy variable in the regression indicating the plant. Do you think the analyst should also include an interaction (between plant and labor hours)?

  • CreatedJuly 14, 2015
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