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Question: example 47 wooldridge used data on nonunionized manufacturing firms to...

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Example 4.7 (Wooldridge) used data on nonunionized manufacturing firms to estimate the relationship between the scrap rate and other firm characteristics. We now look at this example more closely and use all available firms. (i) The population model estimated in Example 4.7 can be written as log(scrap)s A) + β hrsemp + β2 log(sales) + 10g(employ) + u. Using the 43 observations available for 1987, the estimated equation is log(ecrap)0emp (0.95) log(saes) .992. log(employ) (4.57) (0.019) (0.360) n43, R20.310 Compare this equation to that estimated using only the 29 nonunionized firms in the sample. (ii) Show that the population model can also be written as log(scrap-As + A hrs emp + β2 log(sales/employ) + θ3 log(employ)] + u where 6s B2 Bs [Hint: Recall that log(a/) -log(x) log(w)] Interpret the hypothesis Ho :03 0 (ii) When the equation from part (ii) is estimated, we obtain log(scrap)11.74 0.42 hrsemp 0.951 log(sales/employ) +0.041 log(employ)) 0.370) (4.57) (0.019) (0.205) n43, R2 0.310 Controlling for worker training and the sales-to-employees ratio, do bigger firms have larger statistically significant scrap rates? (iv) Test the hypothesis that a 1% increase in sales/employ is associated with a 1% drop in the scrap rate.
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