Hello guys,

Please, I need help. I have questions about a year and state fixed effects. I have panel data for 51 states and 12 years.

I used OLS and FE regression. When I tried to fixed-effects for a year, Stata treated it as category variables (The first year as a reference) Is that correct?

HTML Code:
*Death_OLS
regress  Death_rate Unemployment 
regress  Death_rate Unemployment Real_GDP HealthCare
regress  Death_rate Unemployment Real_GDP HealthCare Homeownership Female Citizen Children Worke Earnings  High_School Bachelors_Degree 
regress Death_rate Unemployment Real_GDP HealthCare Homeownership Female Citizen Children Worke Earnings  High_School Bachelors_Degree Age0_18 Age19_25 Age26_34 Age35_54 Age55_64 Age65 
* Fixed effect
xtset state year, yearly
xtreg Death_rate Unemployment Real_GDP HealthCare Homeownership Female Citizen Children Worke Earnings  High_School Bachelors_Degree Age0_18 Age19_25 Age26_34 Age35_54 Age55_64 Age65 i.state, fe
xtreg Death_rate Unemployment Real_GDP HealthCare Homeownership Female Citizen Children Worke Earnings  High_School Bachelors_Degree Age0_18 Age19_25 Age26_34 Age35_54 Age55_64 Age65 i.state i.year, fe

Also, as you can see that when I add more variables, the coefficient on unemployment drops very quickly and eventually becomes small and not statistically significant. This indicates that the unemployment rate has a lot of omitted variable bias. When I control for more state characteristics, it’s the effect on mortality is less clear.

In linear regression, omitted variables are common since it is often impossible to include all relevant variables.

What can I do to fix an omitted variable bias?
How can I mitigate the effects of omitted variable bias?
Through introducing control variables and introducing proxy variables.

Thank you.

Array