Introduction to Econometrics 3rd Edition by James Stock, Mark Watson

Exercise 11

On the text Web site http://www.pearsonhighered.coin/stock_watson/, you will find a data file CPS08 that contains an extended version of the data set used in Table 3.1 for 2008. It contains data for full-time, full-year workers, age 25-34, with a high school diploma or B.A./B.S. as their highest degree. A detailed description is given in CPS08_Description, also available on the Web site. (These are the same data as in CPS92_08 but are limited to the year 2008.) In this exercise, you will investigate the relationship between a worker's age and earnings. (Generally, older workers have more job experience, leading to higher productivity and earnings.)
a. Run a regression of average hourly earnings ( AHE ) on age ( Age ). What is the estimated intercept What is the estimated slope Use the estimated regression to answer this question: How much do earnings increase as workers age by 1 year
b. Bob is a 26-year-old worker. Predict Bob's earnings using the estimated regression. Alexis is a 30-year-old worker. Predict Alexis's earnings using the estimated regression.
c. Does age account for a large fraction of the variance in earnings across individuals Explain.