1. Use the data in JTRAIN3 for this question.
(i) Estimate the simple regression model
re78
5 b0 1 b1train
1
u, and report the results in the
usual form. Based on this regression, does it appear that job training, which took place in 1976 and 1977, had a positive effect on real labor earnings in 1978?
(ii) Now use the change in real labor earnings,
cre
5
re78
2
re75, as the dependent variable. (We
need not difference
train
because we assume there was no job training prior to 1975. That is, if
we define
ctrain
5
train78
2
train75
then
ctrain
5
train78
because
train75
5 0.) Now what
is the estimated effect of training? Discuss how it compares with the estimate in part (i).
(iii) Find the 95% confidence interval for the training effect using the usual OLS standard error and the heteroskedasticity-robust standard error, and describe your findings.