Following on from the example in Section 6,3, the file hwage.dat contains another subset of the data used by labor economist Tom Mroz. The variables with which we are concerned are What effects do changes in the level of education and age have on wages?

(b) Does RESET suggest that the model in part

(a) is adequate?

(c) Add the variables HE2 and HA2 to the original equation and re-estimate it. Describe the effect that education and age have on wages in this newly estimated model.

(d) Does RESET suggest that the model in part

(c) is adequate?

(e) Reestimate the model in part

(c) with the variable CIT included. What can you say about the level of wages in large cities relative to outside those cities?

(f) Do you think CIT should be included in the equation?

(g) For both the model estimated in part

(c) and the model estimated in part (e), evaluate the following four derivatives: