In the introduction to regression, we suggested that the
standard model of competitive equilibrium predicts
a statistical hypothesis
about the relationship between minimum wages and employment.
Many predictions of economic theory become converted to
statistical hypotheses about regression coefficients.
For the LRM we can write the
5 required elements of
a hypothesis test as:
### Specifying a Hypothesis Test of a Regression Coefficient

See hypothesis testing for a general
review of what a hypothesis test does.
- Model

(where j = 1 or 2)
- Test statistic

Its distribution under
:

- Significance level:

Critical Region: reject H0 if t >

- Computed Value of the test statistic: ???
- Decision: Reject if the computed value lies in the Critical Region
Otherwise, Fail to Reject

Notice that this form lists the five required elements of
a properly specified hypothesis test. We know the distribution
of the test statistic under H0 is the t distribution under
assumptions **A0-A7** as discussed in class. The researcher choses
B,
, and
ahead of time. Before even looking
at the data everything above the "------" can be specified. The only
components of the hypothesis test that depend upon the data are
the value of the test statistic in the sample and the actual decision.
Tutorial Week 4 provides
the steps necessary to complete a hypothesis test in Stata.