1
ECON 1150
Fall 2010
Problem Set 2: Due 09/29/10
Please be sure that the pages are stapled together in the correct order.
Please write neatly.
Parts within each question receive equal weight.
1.
Suppose you are interested in estimating the effect of hours spent in a jobtraining
program (
hours
)
on subsequent hourly wage (
wage
).
For concreteness, take the
population to be all manufacturing workers in the state of Michigan.
(i) If you were given a budget to run a controlled experiment, how would you structure
the job training program in order to uncover the causal effect of job training on hourly
wage?
To uncover the causal effect of job training on hourly wage, one should be interested
in keeping all factors other than training hours as identical across the participants of
the study as possible. Keeping these other factors constant, a researcher randomly
assigns number of training hours to each of the manufacturing workers from the
randomly chosen sample. Resulting hourly wage is recorded, and the following
econometric model is analyzed:
.
(ii) Suppose that the job training program is entirely voluntary, so that each worker
chooses how much training he or she receives.
Write the population model as
,
where E(
u
) = 0.
List at least two factors contained in
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 Fall '08
 Staff
 Econometrics, Regression Analysis, hourly wage

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