Topics 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 (in British Pounds per hour), education (years of 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%) f) 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 the 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%)

Topics 1. An economist would like to examine the effects of years o...