Question: Consider a linear probability model for whether employers offer a pension plan based on the percentage of workers belonging to a union, as well as

Consider a linear probability model for whether employers offer a pension plan based on the percentage of workers belonging to a union, as well as other factors:

pension 5 b0 1 b1percunion 1 b2avgage 1 b3avgeduc 1 b4percmale 1 b5percmarr 1 u1.

(i) Why might percunion be jointly determined with pension?

(ii) Suppose that you can survey workers at firms and collect information on workers’ families. Can you think of information that can be used to construct an IV for percunion?

(iii) How would you test whether your variable is at least a reasonable IV candidate for percunion?

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