Conduct a simple linear regression analysis to examine the relationship between ‘education’ (the independent variable) and ‘wage’ (the dependent variable). Using the Excel data file, prepare a 2000 word report using the following structure:
In preparing your report you must address the following questions:
(a) Obtain summary statistics and histograms for the variables WAGE and EDUC. Discuss the data characteristics.
(b) Estimate the linear regression WAGE = β1 + β2EDUC + ε and interpret the slope.
(c) Calculate the residuals and plot them against EDUC. Are any patterns evident and, if so, what does this mean?
(d) Estimate the quadratic regression WAGE = α1 + α2EDUC2 + ε and interpret the results. Estimate the marginal effect of another year of education on wage for a person with 12 years of education, and for a person with 14 years of education. Compare these values to the estimated marginal effect of education from the linear regression in part (b).