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The data set (PS3PR401K.txt) used in Homework 6 contains the 401K participation rate (Prate) for individual firms, firm matching rate (Mrate), the number of years
The data set (PS3PR401K.txt) used in Homework 6 contains the 401K participation rate (Prate) for individual firms, firm matching rate (Mrate), the number of years that a firm has been offering 401K plan (Age), and the total number of employees (Totemp). In homework 6 you were asked to analyze the following equation Prate=_0 _1 Age _2 Mrate u This equation might be subject to the endogeneity issues. The increasing number of firms offering 401K plan and the rising participation rate could have been driven by the government's promotion of retirement investment, motivated by the increasing pressures on Social Security. In other words, the Age variable may be endogenous and thus correlated with the residual. Compute the correlation between Age and the OLS residuals, that is, Corr(Age,u). What does this correlation say about endogeneity of the Age variable
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