2. (IV Estimator) The 401K participation equation in the previous question might subject to the endogeneity issue. The increasing number of firm offering 401K plan and the rising participation rate could be a result of government's effort of promoting retirement investment in order to alleviate the pressure on social security. In other words, the Age variable may have an endogeneity issue and is correlated with the residual. (a) After running the simply OLS on the 401K participation equation in 1 (a), compute the correlation between Age and the OLS residuals e, that is, Corr( Age e). Does this correlation indicate no endogeneity issue for the AGE variable? 1 (b) In order to overcome the endogeneity issue, we propose using Totemp as an instrument. Running a regression of Age on Totemp with an intercept term, and test to see if Totemp is significant. Why is the significance important? (c) Assuming no heteroscedasticity problem. Find the IV estimates for the same model as in Problem 1. (d) Compute the variance-covariance matrix for your IV estimates, and test the significance of each estimate. Comment your results. 2. (IV Estimator) The 401K participation equation in the previous question might subject to the endogeneity issue. The increasing number of firm offering 401K plan and the rising participation rate could be a result of government's effort of promoting retirement investment in order to alleviate the pressure on social security. In other words, the Age variable may have an endogeneity issue and is correlated with the residual. (a) After running the simply OLS on the 401K participation equation in 1 (a), compute the correlation between Age and the OLS residuals e, that is, Corr( Age e). Does this correlation indicate no endogeneity issue for the AGE variable? 1 (b) In order to overcome the endogeneity issue, we propose using Totemp as an instrument. Running a regression of Age on Totemp with an intercept term, and test to see if Totemp is significant. Why is the significance important? (c) Assuming no heteroscedasticity problem. Find the IV estimates for the same model as in Problem 1. (d) Compute the variance-covariance matrix for your IV estimates, and test the significance of each estimate. Comment your results