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[40 pts] Annual data on Puerto Rican employment rate, minimum wage, and other variables are used to fit the following model:

[40 pts] Annual data on Puerto Rican employment rate, minimum wage, and other variables are used to fit the following model: log(prepopt) = β0 + β1 log(mincovt) + β2 log(usgnpt) + β3t + ut where prepopt is the employment rate in Puerto Rico during year t (ratio of those working to total population), usgnpt is real U.S. gross national product (in billions of dollars), and mincov measures the importance of minimum wage relative to average wages. Using the data in PRMINWGE.DTA for the years 1950 through 1987, (a) Estimate the model using the least squares. (b) Give a precise interpretation of the estimate for the coefficient of log(usgnpt). How is it different from the case where the model does NOT include the time trend? (c) Define the GNP for Puerto Rico as prgnp. Add log(prgnp) to this model, and estimate this new model. Is log(prgnp) statistically significant? (d) Interpret the coefficient of log(prgnp). How does adding log(prgnp) affect the estimated minimum wage effect?

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