4. Consider the following regression equation, where Google is equal to 1 if an individual in thesample has worked at Google and 0 otherwise, and Earnings is annual earnings in thousands ofpounds (standard errors in parentheses):Earnings \ = 25000(12.5)+ 42000(7.0)Google,(a) Interpret the coefficient on Google.(b) Is the coefficient on Google statistically significant at the 5% level? How do you know?(c) Suppose that instead of Google we had used a variable called NeverGoogle, equal to 1 if anindividual has never worked at Google and 0 otherwise. (i) How would the slope coefficientchange? (ii) What would happen to the intercept? (d) What prevents us from interpreting the coefficient on Google as a causal effect? Give examplesin your answer.
4. Consider the following regression equation, where Google is equal to 1 if an individual in the
sample has worked at Google and 0 otherwise, and Earnings is annual earnings in thousands of
pounds (standard errors in parentheses):
Earnings \ = 25000
(12.5)
+ 42000
(7.0)
Google,
(a) Interpret the coefficient on Google.
(b) Is the coefficient on Google statistically significant at the 5% level? How do you know?
(c) Suppose that instead of Google we had used a variable called NeverGoogle, equal to 1 if an
individual has never worked at Google and 0 otherwise. (i) How would the slope coefficient
change? (ii) What would happen to the intercept?
(d) What prevents us from interpreting the coefficient on Google as a causal effect? Give examples
in your answer.
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