A regression of average weekly earnings (AWE, measured in dollars) on age (measured in years) using a random sample of college-educated full-time workers aged 25–65 yields the following: AWE = 696.7 + 9.6 X Age, R2 = 0.023, SER = 624.1.
a. Explain what the coefficient values 696.7 and 9.6 mean.
b. The standard error of the regression (SER) is 624.1. What are the units of measurement for the SER? (Dollars? Years? Or is SER unit-free?)
c. The regression R2 is 0.023. What are the units of measurement for the R2? (Dollars? Years? Or is R2 unit-free?)
d. What does the regression predict will be the earnings for a 25-year-old worker? For a 45-year-old worker?
e. Will the regression give reliable predictions for a 99-year-old worker? Why or why not?
f. Given what you know about the distribution of earnings, do you think it is plausible that the distribution of errors in the regression is normal? (Hint: Do you think that the distribution is symmetric or skewed? What is the smallest value of earnings, and is it consistent with a normal distribution?)
g. The average age in this sample is 41.6 years. What is the average value of AWE in the sample?