In a study of turnover in the labor market, James F. Ragan, Jr., obtained the fo

Question

In a study of turnover in the labor market, James F. Ragan, Jr., obtained the following results for the U.S. economy for the period of 1950-1 to 1979-IV* (Figures in the parentheses are the estimated t statistics.) In Y, = 4.47-0.34 In X, + 1.22 In X, + 4.28) -5.31)3.64) +0.80 In Xs, 0.0055 xe 1.22 In X (3.10) R2 = 0.5370 (1.10(3.09) Note: We will discuss the t statistics in the next chapter. where Y-quit rate in manufacturing, defined as number of people leaving jobs voluntarily per 100 employees X2 = an instrumental or proxy variable for adult male unemployment rate X3- percentage of employees younger than 25 X4= NT-1/M-4 = ratio of manufacturing employment in quarter (t-1) to that in quarter (t-4) X5 percentage of women employees X6 = time trend (1950-1 = 1) Source: See Ragan's article, "Turnover in the Labor Market: A Study of Quit and Layoff Rates," Economic Review, Federal Reserve Bank of Kansas City, May 1981, pp. 13-22.

Explanation / Answer

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a) I will start with R^2 value which is low, telling that model is not a good fit. Beside that, the estimated regression equation has right coefficients that need to be tested for significance.

b) It is justifiable. It tells that as that if the adult unemployment rate is increasing, people who quit should also increase. However, only probelm is it is not necessary that quit rate in manufacturing sector will be affected if unemployment rate increases. So, there might be a problem in this.

c) Younger people tend to switch jobs faster than old people. Hence, it is positive.

d) 0.0055 decline as that is the trend coeffiicient. So, one unit increase in trend, decreases quit rate by 0.0055.

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