Question

A researcher has designed the relationship between the salaries of selected employees of an organization (shown as "EARN" in $/hour) and their years of education (shown as "YRSEDUC", in years) as hereunder. A total number of _(i) employees were selected for this study:

EARN_(i) = B₍₀₎ + B₍₁₎ YRSEDUC_(i) + u_(i)

Moreover, by applying this model on a database, the researcher found that the GRETL result shows the slope coefficient of the regression line as B₍₁₎ = 0.39 (assume 5% level of significance)

Using the above findings, answer the following questions:

A-Comment about the possible relationship between the two variables.

B-How do you interpret the slope coefficient of 0.39?

Answer 1

Answer a: We expect that there would be a positive relationship between the years of education and the salary of of any selected employees from the organisation. Usually an individual with higher educational qualification receives higher salary and thus we expect a positive relationship between the two.

Answer b: 0.39 is the slope coefficient term for the variable years of education which shows that an additional year of education is on an average expected to increase the salary of the employee of the organisation by 0.39$ per hour.