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:
 Purpose (2 marks)
 Background (2 marks)
 Method (4 marks)
 Results (4 marks)
 Discussion (5 marks)
 Recommendations (3 marks)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 (2 marks).
(b) Estimate the linear regression WAGE = β1 + β2EDUC + ε and interpret the slope (3 marks).
(c) Calculate the residuals and plot them against EDUC. Are any patterns evident and, if so, what
does this mean? (3 marks)
(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). (4 marks).
(e) Construct a histogram of ln(WAGE). Compare the shape of this histogram to that for WAGE from
part (a). Which appears to be more symmetric and bell-shaped? (2 marks).
(f) Estimate the log-linear regression ln(WAGE) = γ1 + γ2EDUC + ε and interpret the slope. 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
effects of education from the linear regression in part (b) and quadratic in part (d) (6 marks).