Should i use cluster robust standard errors (clustered at individual level) when using a fixed effects regression on microdata?

[Carl Kier]

Hello
I'm using a fixed effects regression on microdata. The microdata is a 1% random sample of the Danish population in the years 1980-2010. Should i use cluster robust standard errors in this situation, or the default standard errors?
Thanks

[Fei Wang]

Carl, if your data is an individual-level panel data, then I would say yes. But if it's a pooled cross-sectional data (like random samples from multiple waves of census), there is no such "individual level" for clustering.

[Carlo Lazzaro]

Carl:
as usual, it depends.
Is your dataset cross-sectional or panel?

[Felix Bittmann]

When regular and robust standard errors differ by a lot, that usually means something is wrong. So feel free to test and compare. More infos: https://gking.harvard.edu/publicatio...hey-do-not-fix

[Carl Kier]

Sorry, i should have been clear. It is panel data, and individuals are followed until they die. What is the reason for using cluster robust standard errors in panel data?

[Fei Wang]

Carl, clustering SE at the individual level makes estimates robust to heteroskedasticity and within-individual serial correlation.

[Raymond Portocarero]

Dear participants,

My dataset look at individual firms Scorechanges (SC) over the years whereby each firm incurred the scorechange somewhere from 2016-2020. Therefore, I have repeated time values in my sample data. I provide an example below.

* Example generated by -dataex-. To install: ssc install dataex
clear
Firmid Firm                  Year SC Own Skills  PP   ED
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "            2018  3  5.28  4.73 15.18 11
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
1 "ADVTECH LTD "               .  .     .     .     .  .
2 "AFRICAN OXYGEN                  "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD " 2017  5  18.7  12.1 16.83 11
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
2 "AFRICAN OXYGEN LTD ORD "    .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"    2016  -3   0 11.66  16.5 0
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
3 "ARCELORMITTAL SA LTD"       .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "  2017  2 17.49  9.02 15.29
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
4 "ARGENT INDUSTRIAL LTD "     .  .     .     .     .  .
5 "ASPEN PHARMACARE HLDGS."    .  .     .     .     .  .
5 "ASPEN PHARMACARE HLDGS."    .  .     .     .     .  .
5 "ASPEN PHARMACARE HLDGS."    .  .     .     .     .  .
5 "ASPEN PHARMACARE HLDGS."    .  .     .     .     .  .
end

I would like to regress Scorechange (SC) on Own Skills PP ED

regress SC Own Skills PP ED

=> No problem, regression results show up. However, as I have individual firms and firms incurring the Scorechange (SC) in different years, I should control for fixed effects with respect to firms and years.

 regress SC Own Skills PP ED, fe vce (cluster, firm_id)

or

 regress SC Own Skills PP ED, fe vce (cluster, Year)

=> STATA tells me "must first specify panelvar; use xtset".

However,

 xtset SC year

Yields in "repeating time values in the sample". How should I correctly state my panel data so that I can run the regression with fixed effects?

Thank you

[Carl Kier]

Carl:
as usual, it depends.
Is your dataset cross-sectional or panel?

It is panel data. So what do you recommend?

[Carlo Lazzaro]

Carl:
Fei and Felix already replied positively.
If you detect heteroskedasticity and/or autocorrelation (one of them, at least, is frequent with panel dataset), go -robust- or -vce(cluster panelid)- (unlike -regress-, both option do the very same job under -xtreg-).