Consider the following wage equation: Where lnwi is individual i\'s log wage, ed

Question

Consider the following wage equation: Where lnwi is individual i's log wage, edi; measures individual i's years of completed education, and expi measures individual s ears o experience and emalei Is a dummv variable Indicatlng whether individual 18 a female. is an unobserved error term. The R2-0.283. You estimate regression (1) on a sample of male and female workers in the their 30s and living and working in the UK. The sample size is 453. You obtain the following estimates: Coefficient Estimate Standard error 30 31 32 3 34 0.0473 0.0818 0.0721 0.00207 -0.155 0.0112 0.0052 0.0074 0.000293 0.0521

Explanation / Answer

Here we have to check that the returns to experiendce are linear or not. That means the coefficnet of exp2 is zero or not here. If it is zero than relation with experience is a linear one and if it is not zero, the relationship is not linera.

H0 : 3  = 0

Ha : 3 0

Here t - value

t =^3 / se3  = (-0.00207)/ (0.000293) = -7.06484

Here n = 433 -2 = 431

here p - value = Pr( t > 7.06484 ; 431) = 6.498 x 10-12

so p - value < 0.05 and significant here so we shall reject the null hypothesis here and can claim that the relationship is not linear here.

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