Exercise 8


The file JTRAIN2.GDT contains data on a job training experiment for a group of men. Men could enter
the program starting in January 1976 through about mid-1977. The program ended in December 1977.
The idea is to test whether participation in the job training program had an effect on unemployment
probabilities and earnings in 1978.

(i)     The variable train is the job training indicator. How many men in the sample participated
in the job training program? What was the highest number of months a man actually participated in
the program?

(ii)  Run a linear regression of train on several demographic and pretraining variables: unem74,
unem75, age, educ, black, hisp, and married. Are these variables jointly significant at the 5%
level?

(iii)            Estimate a probit version of the linear model in part (ii). Compute the likelihood
ratio test for joint significance of all variables. What do you conclude?

(iv) Based on your answers to parts (ii) and (iii), does it appear that participation in job
training can be treated as exogenous for explaining 1978 unemployment status? Explain.

(v)   Run a simple regression of unem78 on train and report the results in equation form. What is
the estimated effect of participating in the job training program on the probability of being
unemployed in 1978? Is it statistically significant?

(vi) Run a probit of unem78 on train. Does it make sense to compare the probit coefficient on train
with the coefficient obtained from the linear model in part (v)?

(vii)          Find the fitted probabilities from parts (v) and (vi). Explain why they are
identical. Which approach would you use to measure the effect and statistical significance of the
job training program?

(viii)        Add all of the variables from part (ii) as additional controls to the models from
parts (v) and (vi). Are the fitted probabilities now identical? What is the correlation between
them?