For this exercise, we use JTRAIN.RAW to determine the effect of the job training grant on hours of job training per employee. The basic model for the three years is
hrsempit = (0 + (1td88t + (2d89, + (1 grantit + (2 granti, t-1 + (3 log (employit) + ai + uit
(i) Estimate the equation using first differencing. How many firms are used in the estimation? How many total observations would be used if each firm had data on all variables (in particular, hrsemp) for all three time periods?
(ii) Interpret the coefficient on grant and comment on its significance.
(iii) Is it surprising that grant-1, is insignificant? Explain.
(iv) Do larger firms train their employees more or less, on average? How big are the differences in training?