Consider the following linear regression model explaining Wages by Education. wages = Bo+B Education + u...

 

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Consider the following linear regression model explaining Wages by Education. wages = Bo+B₁ Education + u (1) (i) Is the above model likely to accurately measure the returns to education? Explain. [2 marks] (ii) What conditions needs to be met so ₁ can be given a casual interpretation. [2 marks] (iii) Imagine you can dictate peoples education level. How would you design an experi- ment so ₁ gives a causal interpretation. [2 marks] (iv) Suppose the true model is: wages fo+ B₁ Education + B₂ Ability + u (2) Construct an expression for the bias of ₁ in (1). Argue if the bias is negative or positive. [2 marks] (v) OLS estimators satisfying CLM assumptions 1-5, are described as consistent and asymptotically normal. Describe what each means and how it occurs. [2 marks] Consider the following linear regression model explaining Wages by Education. wages = Bo+B₁ Education + u (1) (i) Is the above model likely to accurately measure the returns to education? Explain. [2 marks] (ii) What conditions needs to be met so ₁ can be given a casual interpretation. [2 marks] (iii) Imagine you can dictate peoples education level. How would you design an experi- ment so ₁ gives a causal interpretation. [2 marks] (iv) Suppose the true model is: wages fo+ B₁ Education + B₂ Ability + u (2) Construct an expression for the bias of ₁ in (1). Argue if the bias is negative or positive. [2 marks] (v) OLS estimators satisfying CLM assumptions 1-5, are described as consistent and asymptotically normal. Describe what each means and how it occurs. [2 marks]

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Answer i The above model is not likely to accurately measure the returns to education There are many factors that affect wages and education is just one of them This model does not take into account o... View the full answer