In this exercise we examine data for 534 workers obtained from the Current Population Survey (CPS) for 1985. The data can be found as Table 20.10 on the textbook website. The variables in this table are defined as follows:

W = wages $, per hour; occup = occupation; sector = 1 for manufacturing, 2 for construction, 0 for other; union = 1 if union member, 0 otherwise; educ = years of schooling; exper = work experience in years; age = age in years; sex = 1 for female; marital status = 1 if married; race = 1 for other, 2 for Hispanic, 3 for white; region = 1 if lives in the South.

Consider the following simple wage determination model:

lnW = β₁ + β₂Educ + β₃Exper + β₄Exper2 + u_i (1)

a. Suppose education, like wages, is endogenous. How would you find out that in Equation (1) education is in fact endogenous? Use the data given in the table in your analysis.

b. Does the Hausman test support your analysis in (a)? Explain fully.