How much does experience affect wage rates? The data file cps4_small.dat contains 1000 observations on hourly wage rates, experience and other variables from the 2008 Current Population Survey (CPS).

(a) Estimate the linear regression WAGE ¼ b1 þ b2EXPER þ e and discuss the results. Using your software plot a scatter diagram with WAGE on the vertical axis and EXPER on the horizontal axis. Sketch in by hand, or using your software, the fitted regression line.

(b) Test the statistical significance of the estimated slope of the relationship at the 5% level. Use a one-tail test.

(c) Repeat part

(a) for the sub-samples consisting of (i) females, (ii) males, (iii)

blacks, and (iv) white males. What differences, if any, do you notice?

(d) For each of the estimated regression models in

(a) and (c), calculate the least squares residuals and plot them against EXPER. Are any patterns evident?