To investigate whether or not there is discrimination

Subject: Mathematics    / Statistics
a) “To investigate whether or not there is discrimination against a sub-group of individuals, you regress the log of earnings on determining variables, such as education, work experience, etc., and a binary variable which takes on the value of one for individuals in that sub-group and is zero otherwise. You consider two possible specifications. First, you run two separate regressions, one for the observations that include the sub-group and one for the others. Second, you run a single regression but allow for a binary variable to appear in the regression. Which model is better for the task? Explain your reasoning.”

b) “One of your colleagues claims that one should never bother with WLS. Using OLS with robust standard errors gives correct inference, at least asymptotically.” True, false, or a bit of both? Explain your reasoning.”

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