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462 Chapter 11 Regression with a Binary Dependent Variable

the probability that a worker was employed in April 2009, conditional
on being employed in April 2008.

b. Regress Employed on Age and Age2, using a linear probability model.

i. Based on this regression, was age a statistically significant determi-
nant of employment in April 2009?

ii. Is there evidence of a nonlinear effect of age on the probability of
being employed?

iii. Compute the predicted probability of employment for a 20-year-
old worker, a 40-year-old worker, and a 60-year-old worker.

c. Repeat (b) using a probit regression.

d. Repeat (b) using a logit regression.

e. Are there important differences in your answers to (b)–(d)? Explain.

f. The data set includes variables measuring the workers’ educational
attainment, sex, race, marital status, region of the country, and
weekly earnings in April 2008.

i. Construct a table like Table 11.2 to investigate whether the con-
clusions on the effect of age on employment from (b)–(d) are
affected by omitted variable bias.

ii. Use the regressions in your table to discuss the characteristics of
workers who were hurt most by the Great Recession.

g. The results in (a)–(f) were based on the probability of employment.
Workers who are not employed can either be (i) unemployed or
(ii) out the labor force. Do the conclusions you reached in (a)–(f) also
hold for workers who became unemployed? (Hint: Use the binary
variable Unemployed instead of Employed.)

h. These results have covered employment transitions during the Great
Recession, but what about transitions during normal times? On the
textbook website, you will find the data file Employment_06_07,
which measures the same variables but for the years 2006–2007. Ana-
lyze these data and comment on the differences in employment tran-
sitions during recessions and normal times.

E11.2 Believe it or not, workers used to be able to smoke inside office buildings.
Smoking bans were introduced in several areas during the 1990s. In addi-
tion to eliminating the externality of secondhand smoke, supporters of
these bans argued that they would encourage smokers to quit by reducing
their opportunities to smoke. In this assignment you will estimate the effect