Question

Suppose that you are interested in estimating the average impact a job training program has on wages. However, you recognize that there are some observed factors that influence wage, participation on the training program, or both.You may still get the unbiased estimate for the program effectiveness by:

Select one:

a. Including only the factors that predict participation but not wage as controls and running a multiple linear regression

b. Excluding those observed factors from your model and running a simple linear regression

c. Including only the factors that predict wage but not participation as controls and running a multiple linear regression

d.  

Including factors that predict both wage and participation as controls and running a multiple linear regression

Answer 1

Control variables in the multiple regression are used to remove their effects from the equation but we are not really interested in these varaibles. These are related to the dependent variable which is wages in this case.
Hence, we will include only the factors that predice wage as controls and run a multiple regression equation. We will not include factors that predict participation in the training program as it will lead to multicollinearity.

Hence, correct option: C)