Is potential work experience a satisfactory proxy for actual work experience?

Length of work experience is generally found to be an important determinant of earnings. Many data sets do not contain this variable. To avoid the problem of omitted variable bias, a standard practice is to use PWE, potential years of work experience, as a proxy. PWE is defined as AGE, less age at completion of full-time education (years of schooling plus 5, assuming that schooling begins at the age of 6):

PWE =AGE - S - 5.

Using your EAEF data set, regress LGEARN (1) on S, ASVABC, MALE, ETHBLACK, and ETHHISP, (2) on S, ASVABC, MALE, ETHBLACK, ETHHISP, and PWE and (3) on S, ASVABC, MALE, ETHBLACK, ETHHISP, and EXP. Compare the results and evaluate whether PWE would have been a satisfactory proxy for EXP if data for EXP had not been available.

Variation: PWE is not likely to be a satisfactory proxy for work experience for females because it does not take into account time spent not working while rearing children. Investigate this by running the three regressions for the male and female subsamples separately. You must drop the MALE dummy from the specification (explain why).