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You are interested in estimating how the number of days of work missed affects the size of an employee's annual raise. You collect data on the size of the raise se") and the number of days of work missed missed') for 5 employees at a Santa Cruz convenience store. You also collect data on the distance that each employee lives from the convenience store. employee raise missed distance 10 a) Regress the size of the raise on the number of days missed. That is, estimate the coefficients Bo and B1 in the regression below using ordinary least squares. raise Bo missedi ui b) You are concerned that the estimated effect of days missed on the size of the raise may be biased by omitted variables. Suppose that being motivated" is an omttedvariable. Carefully explain how omitting "motivated" from the regression is likely tobias the estimate of B1. c) You intend to use the distance an employee lives from the store as an instrumental variable for days of work missed. Compute the instrumental variables estimate for using the data above. Show the equation you use to get your answer. d) Compare the instrumental variables estimate Bl above to the ordinary least squares estimate of B1 in part a. Do they differ in the way we predicted in part b) oftis question? Explain
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