Answer to Question #16194 in Microeconomics for Farooq

Question #16194

Assume that the true regression model is wi=a+bSi +cAi+εi where w is the hourly wage rate of each individual in the sample; S is the respondent’s years of schooling and A is the respondent’s level of ability; a, b and c are parameters to be estimated and ε is an error term. If A is not available in the data and the model is estimated without A on the right-hand-side, what would be the likely effect on the estimate of b?

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