I've noticed in my reading of fixed effects panel studies a lot of researchers will control for location fixed effects and also cluster standard areas at this location. I was wondering if both are necessary? For example, in the context of local unemployment and health in the US, my understanding is that the state dummies in a fixed effects logistic regression control for any time-invariant state-level factors that are correlated with both state economic conditions and health. So, what does clustering standard errors at the state level do in such an analysis?

This is something I see a lot and am interested in. A better example can be found in the really interesting study below:

The Great Recession and Mothers’ Health Janet Currie, Valentina Duque, Irwin Garfinkel https://academic.oup.com/ej/article/...8/F311/5077911

Kindest regards,

John