Education and work experience on employees

1. An economist would like to examine the effects of years of education and work experience on employees’ earnings. Earnings dataset contains fictitious information on 80 British employees for the
year 2013. The variables include earnings , education and experience (years of work experience). a) Formulate a simple relationship between earnings, education and experience in a form of an
equation (5%) b) What are a priori expectations regarding the anticipated signs of the regression coefficients? Justify your answer (5%) c) Estimate the above relationship using
econometric/statistical software and fully explain how the output can be interpreted. Comment on the fit of your model (10%) d) Conduct appropriate t and F tests for the significance of all
independent variables in the model at 95% level and explain the null and the alternative hypothesis. Indicate the degrees of freedom and decision rule (20%) e) Explain what type I and type II
errors are (5%) 0 Predict the mean hourly earnings for 15 years of education and 25 years of experience (5%) g) What other independent variables could be considered in the model? Explain the
relationship they have with the dependent variable (10%) h) Consider a log-linear model to explain the relationship between earnings, education and experience. Interpret the results and conduct
appropriate t and F tests for the significance of all independent variables in the model at 95% level. Indicate which model is more superior in explaining the relationship between earnings,
education and experience (30%) i) Present a short summary of the conclusions that you have reached (10%)


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