PAM 310 hw2 - Julie Melamud PAM 310 Homework #2 February...

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Julie Melamud PAM 310 Homework #2 February 27, 2008 1. log(wage)= β 0 + β 1 educ + β 2 exper + β 3 tenure log(wage)= 0.284 + 0.0920educ + 0.0041exper + 0.0221tenure b. Interpret estimated coefficients: Estimated β 1 - If we increase education by one unit and hold the values of experience and tenure fixed, then wage would increase by 9.2% (0.092x100%). Estimated β 2 - If we increase experience by one unit, and the values of education and tenure are held constant, then wage would increase by 0.41% (0.0041x100%). Estimated β 3 - If we increase tenure by one unit, and hold the values of education and experience fixed, then wage increases by 2.21% (0.0221x100%). c. The value of R 2 is 0.3160. This value implies that education, experience, and tenure altogether can explain 31.6% of the variation in wages. d. MLR 3 (No perfect collinearity) is the assumption that none of the independent variables are constant and that there is no exact linear relationships among the independent variables. This model DOES violate MLR 3 because if g( exper )= 2 x exper , then g(exper) is a constant multiple of exper, and there is an exact linear relationship between the variables. Therefore, the model suffers from perfect
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PAM 310 hw2 - Julie Melamud PAM 310 Homework #2 February...

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