* Labour Supply Model * * Keywords: * regression, 2sls, labour, supply, iv, wu * * Description: * We illustrate how to examine endogeneity of a variable in Labour Supply * Model by using Wu test * * Author(s): * Noel Roy * Skif Pankov * * Source: * William H. Greene, Econometric Analysis - 7th Edition * Pearson International Edition, Chapter 8, Example 8.6 (page 276) * * Reading the datafile and retrieving variables' names read (TableF8-1.shd) / names * Running an OLS regression of wks on lwage, ed, union and fem ols wks lwage ed union fem * Specifying the list of exogenous variables in the demand-supply model as * z1 = [constant,ind ed union fem] and running a 2SLS regression inst wks lwage ed union fem (ind ed union fem) / dn * Adding smsa to the list of exogenous variables z2 inst wks lwage ed union fem (ind ed union fem smsa)/dn * Testing whether lwage is exogenous using the Wu specification test: * Getting the predicted values in a regression of lnwage on the first set * of instrumental variables z1. ?ols lwage ind ed union fem / predict=lwghat * Running an OLS regression of wks on independent variables and lwghat ols wks lwage ed union fem lwghat * * Testing the null hypothesis that the coefficient of lwghat is zero. test lwghat stop